There are many reasons why you may want to consider the rent-to-own option when you're looking for your new home. Perhaps you were recently divorced, your credit is bad or you don't have enough of a down payment to qualify for a mortgage. Whatever your reasons may be, this may be one of the ways for you to get into the home of your dreams.
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Typically, you and the owner come up with an agreement for you to be able to purchase the home within a certain time frame. The price is set before hand, you make the necessary down payment and monthly payments. By the end of your contract, your credit may be such that you can be approved for a mortgage loan or you can choose to walk away from the house. Rent to own rules in Canada are similar to rent to own rules in the United States. Both have their advantages and disadvantages.
According to CHSI Canada, there are a series of steps that you should follow once you decide you want to rent to own. The first of these is the down payment. The owner is required to accept your down payment and apply it to the agreed-upon purchase price of the home.
This may be equivalent to what you normally would put down if you were traditionally renting a home, which is usually the first and last month's rent. However, each owner is different and may have his own rules on how they want to approach the contract. Lending institutions look at this as an acceptable form of payment when you exercise your option to purchase.
The Set Price option is great for the buyers, but not as advantageous for the sellers. In times of falling property values and tightened credit restrictions, finding a home can be a chore. However, buyers have an advantage at these times since they are able to hunt for a home that they like and grab it at a price they can afford. Once the contract is signed, the seller must agree to the set price of the home even if property values start to rise.
Portion of Rent to Equity
Just as the down payment is applied to the purchase price of the property, in the portion of rent to equity option, so is the portion of rent. Each month a renter pays their rent, the owner takes a portion of that and sets it aside for the renter to use toward their final down payment on the property. The downside to this is that if the renter decides not to purchase or can't qualify for a mortgage at the end of the term, they can lose the down payment.
Bob Mangat, of Homevestors Wealth Corporation, explains that buyers should really think about whether or not they will be able to buy the home at the end of the contract. Otherwise, it will be a waste of money and time.