I get a lot of queries about whether rent 2 own might be a good solution for people in their situation.
I also get a lot of: “I don’t know anything about rent 2 own, but I thought I’d take a ‘shot in the dark’ and just see.”
And I get: “I need to move out and can’t find any suitable rental (and, besides) I hate paying someone else’s mortgage. Help!”
So, who can we help with a rent 2 own?
Let me say, first, that we can help you if you can afford a mortgage but don’t yet qualify at the lenders AND if we can anticipate you reaching qualification by the end of the rent 2 own term.
This means you need to have sufficient income to qualify because we can’t cheat the system. We can’t do what the banks can’t do. All we can do is “buy time” for you to reach bank qualification standards.
Generally, the following situations lend themselves to fitting a rent 2 own program.
- Your credit is not yet good enough to get a typical mortgage. The good news is that most credit can be fixed over a two- or three-year period to reach lending standards—if you know what to do and are committed and diligent about doing so.
The other good news is that credit coaching is an integral part of our program. It applies to every client regardless of their score and report. If you follow the guidance, you should be able to achieve an adequate score and report (two different but both critical things) within the term of your rent 2 own. But we can only guide you; we can’t fix it for you. That is your responsibility.
- You have some, but not enough, savings for a down payment. Generally, you will need 10% plus closing costs saved up for a down payment, unless your credit score is very good, in which case, 5% (plus closing costs) may be enough. In most cases, though, aiming for only 5% is a bit too risky, as we want to set our clients up for success.
You need to be about half ways to the goal to start a rent 2 own, but then we build the balance into the rent structure so that it gets saved up during the term of the agreement. If you have nothing to start, then a rent 2 own program won’t work. (This is a bigger topic than for this post, so please see my earlier post on Why do we need a deposit for rent 2 own, which you can click on the right).
- You have too short or too insecure an income history. You need a decent track record of stable income for the lenders to take a chance on giving you a mortgage. Self-employed people, especially, find it difficult to qualify, but they are not the only ones who face these challenges.
Rent 2 own can buy you the time to get that track record to satisfy the lenders. But, you may have to adjust the way you have been claiming your income, especially if you are self employed. Again, we guide you to the right path, but you have to be committed to following that path.
- You are new immigrant and have not yet had sufficient time to build an adequate profile. Rent 2 own can buy you the time to establish a history of both income and credit responsibility. Since several requirements on a credit file require a minimum two-year track record to count toward your mortgage eligibility, a rent 2 own program may be a perfect fit.
Another piece of good news is that any or all of the above four categories can be fixed simultaneously, so even if you fall short on all of them, you could reach mortgage qualification during the term of the rent 2 own.
- You are facing foreclosure on a property you already own. Here a rent 2 own program is ideal, provided we can be assured that you can become qualified again within the term of the rent 2 own.
What we do is buy your house from you at a high enough value to pay off all your debts and avoid losing it, along with a rent 2 own contract whereby you will rent 2 own it from us for a few years before purchasing it back. It may work even if you have no savings for a down payment if there is enough equity in the property that you can pay off all your debts and still have enough cash left from the purchase for the rent 2 own Option fee (deposit).
It’s a huge win-win: you don’t lose your home and you don’t have to move out; you just switch from an owner to a renter for a few years before regaining ownership of your home again. Of course, it is not automatic; you do have to qualify on all counts, as outlined above, and we would only do it if we could be confident you will achieve that. But you will be pretty motivated to do so, it seems to me.
You need to act, though, before the redemption period granted by the judge expires and the bank has full control f the property. After that, it may be too late.
So, there you have five scenarios in which rent 2 own may be a good fit for you.