In part one of this series, I defended the legitimacy of rent to own, while also cautioning against getting caught up with fly-by-night outfits that don’t have your interests at heart. I urged potential clients to do their due diligence, to make sure they are dealing with a reputable operator.
So how do you know who is a reputable operator? Here are some guidelines:
1. Does the operator have a program to help you get qualified by the end of the term? Reputable operators will not set you up for failure; they will have a program in place to help you get qualified for the mortgage you need at the end. They will have a credit coaching component and they will have a financial formula that ensures that you have enough saved up for at least the minimum down payment.
In the end, it is still your responsibility to “do what it takes” to get qualified. But if you had all the resources within you to do that, then you probably wouldn’t need to do a rent-to-own program in the first place. If you are being left entirely on your own to sink or swim, then you need to question whether you should get involved with that operator.
2. Is the operator’s program set up to be a win-win scenario? Ask your operator how he/she makes money? Is the operator further ahead if you close in the end, or if you fail to close in the end?
3. Is the operator offering you easy terms, such as taking a minimal deposit or offering a great rental rate that includes a portion allocated to future down payment? If so, then you are being set up for failure. In BC, your original deposit and your monthly rent credits should add up to at least 7-8% by the end of the term, or you will not likely get a mortgage. And, to satisfy CMHC rules, your rent must be at least market value before any rent credit component, or they will reject you in the end. Easy terms and cheap rent probably means you will lose your money.
4. Does the operator have clear, legal documents? Has the operator advised you to seek independent legal advice? Never enter a deal without a lawyer-prepared document, and without satisfying yourself that you understand it. If the operator does not push you in this direction, ask yourself what the operator may be hiding. Then ask him/her that.
5. Is your operator a member of a professional association? All professionals have associations that monitor and guide their members to operate ethically and professionally. Many professionals, such as realtors, nurses, engineers, mortgage brokers, lawyers and teachers are licensed and require membership in a professional association just to operate legally. Rent to own has not yet been legislated, but there are agencies in place that enforce codes of conduct and ethical behaviour. You should deal only with operators who are members of such an association.
Fraser Valley Rent 2 Own is a member of the Canadian Association of Rent to Own Professionals (www.CAROP.ca).
You can read part 1 of this series here