There are a variety of circumstances under which Rent 2 Own is the ideal path to home ownership. There are some, though, in which it doesn’t make sense. How do you know if it’s right for you?
Here are some things to consider:
1. Can you get a mortgage now?
Rent 2 Own is not an alternative financing scheme to a normal mortgage. It is simply a way of buying time until you become eligible for a mortgage. You still need to (sooner or later) qualify under the then-current lending policies. A Rent 2 Own program helps you get there. If you can get a mortgage now, then you have no reason to try Rent 2 Own.
2. What is preventing you from getting a mortgage now?
If you have too low an income to afford the property you would like, then neither Rent 2 Own, nor anything else, will help you get the property. The only thing you can do is increase your income or lower your expectations. As a general rule-of-thumb under current policies and bank rates (which are always changing), multiply your gross annual income by 4.5 times to get an approximate maximum property value that you will qualify for with a 10% down payment.
If your income is high enough but you cannot qualify, then it is typically one (or more) of three things that are preventing you from qualifying: not enough funds for a down payment, poor or no credit, and an inadequate or unstable work history. All of these can usually be fixed in a Rent 2 Own program over a period of three years or less. In fact, they can be fixed simultaneously.
3. Do you have some savings to start your Rent 2 Own program?
No R2O provider will consider a Rent 2 Own program without an initial deposit of, typically, 4-5% of the value of the property. This gives the provider assurance that the client is serious about the program, compensates the investor somewhat if the client reneges on their commitment, and makes it feasible to accumulate of the balance of funds required over the term of the Rent 2 Own.
4. Can you afford a Rent 2 Own program?
If lack of down payment is your inhibiting factor, then you will need to save that up during the term of the Rent 2 Own. For example, if you are aiming to get to 10% available for a down payment by the end of the term [Note: this is typical because 5% down mortgages are now extremely difficult to qualify for and programs like ours don’t want to set up anyone for potential failure], plus the closing costs, and you are starting with 5%, then you will need a significant amount of surplus rent each month to reach that level. This surplus rent, or “rental credit” must be in addition to market rental rates, both because CMHC rules require that and because of the costs of the program. So, the “gross rent” during the term of the lease-option period will be high, at least market rent plus rental credit amount.
However, that gross rent will be relatively equivalent to what you would need monthly anyways if you were simply paying rent for an equivalent home elsewhere while saving up funds on your own to be able to have the necessary amount available by the end of the term.
Rent 2 Own is for you if you can afford the home you are wanting to buy but need time to reach mortgage qualification standards. While the program doesn’t do anything that you couldn’t, technically, do on your own, it has the following benefits over simply trying to do it yourself.
1. It gets you into the home you want now rather than waiting two or three years until you become eligible.
2. It provides great incentive to save up the necessary funds you need to accumulate for a down payment. Will you be disciplined enough to do so on your own? Or will the “forced savings” component of the program help you get there? 3. Credit coaching is an integral ingredient of any reputable Rent 2 Own program. Almost any credit, no matter how bad, can be fixed within three years IF you know what you are doing and are highly motivated and committed to doing it. Inside a Rent 2 Own program, all the help is there, and a lot of motivation. Rarely does anyone accomplish this on their own.
4. The Rent 2 Own program’s professionals know the market, the lender policies and the changing real estate rules. They know how to make necessary adjustments should the real estate landscape so require. At the end, they have the experience, and sometimes the connections, to get you the mortgage you will need.
I’ve heard a lot of people say, “I’ll just wait and get there on my own.”
I wish them well. But I know that the vast majority will never get there on their own. They’ll be renters for life.
