About six months ago I published a post “Is rent 2 own a good fit for me?” It identified the kinds of scenarios where rent 2 own can be a good option for getting into home ownership. You can check out that post here.
But there are some situations where a rent 2 own program cannot help.
Based on the queries I get, there seems to be considerable confusion about this, so it may be helpful to identify some of those scenarios where we just cannot help out.
- We cannot approve you for a higher amount than the lenders would. Rent-2-own programs do not break mortgage lending rules, they simply buy you time to get to qualification standards under those rules. (And, of course, the programs that we offer assist you to get there rather than leaving you out there on your own, possibly not even fully aware of all that must fall into place to get qualified.)
So we can, for example, buy you time to get your credit repaired, to save up an adequate amount for a down payment, or to establish an adequate work history. Ultimately, though, you are only shoring up your current situation to meet their qualifications–while already living in the home you will own, with a secured final purchase price, and a strategic, coached plan to get there.
So, we need to be guided by the maximum mortgage amounts that the lenders will qualify you for in the end.
In fact, we probably have to be a little more conservative than the lenders because we are qualifying you two or three years in advance of when you will need to meet those qualifications. We, of course cannot accurately predict where interest rates and bank policies will go during the term of the rent 2 own period, nor what turns the housing market will take during that time, so we need to build in some caution.
Based on that, we can currently qualify you for maximum property values of about 4.2 times your (combined) gross annual income, provided you don’t have much other debt.
- We cannot consider any property values over a million dollars. This is a hard cap, because you need a minimum of 20% down payment for any properties valued at $1 million or more. But even properties valued above $500,000 provide an increasingly difficult challenge for both us and our clients. While we will consider them, our sweet spot is in property values between $250,000 and $500,000.
But then, few people can afford, or qualify for, properties valued at more than $500,000 anyways.
- We cannot approve you for properties in areas that are too challenging for us to service. Rent 2 own is a highly hands-on operation; it is a joint effort by the rent-2-own provider and the tenant-buyer. We will likely be visiting you, in your property, every three months, or so.
To adequately service our clients, we have defined our region as the Fraser Valley (Surrey to Hope, Maple Ridge to Agassiz), up the Coquihalla and the Trans-Canada corridor as far as Sicamous, a little bit of the north Okanagan, and are now expanding up the Highway 97 corridor as far as Prince George.
On a case-by-case basis, we may consider other adjacent areas. But we do not operate across Canada or even inter-provincially, like some large providers do.
- We cannot approve you for situations where the lenders will not give you a mortgage on closing, or us a mortgage when we initially buy the property on your behalf. This rules out most acreages, rural areas and even smaller urban centres.
We’re more liberal about this than some of our colleagues in the industry (I have a colleague who will not consider any municipality with a population of less than 50,000), but we still have to be cautious, as we don’t want to set anyone up to fail in the end. While we have been successful in communities like Merritt and Logan Lake, even they present a bigger challenge than larger urban areas.
- We cannot help you if you are not totally committed, and willing to make the appropriate sacrifices to achieve success.
Rent-to-own is not a magic bullet to get you into home ownership. Like university, you are not assured of graduation just by enrolling; you have to do what it takes to achieve graduation standards. And so, like universities, you will need to meet basic entry standards and commit to an action plan to achieve success and be responsible in following it.
As suggested above, achieving success is a joint effort between the rent-2-own provider and the client. We work together at the outset to determine whether the fit is good, we work together during the program to shore up your circumstances so that you can achieve your home ownership goal, and then we work together at the end to get you that mortgage that will make you a homeowner.
Our goal is successful outcomes. So, we need to restrict ourselves, for your own good, to those scenarios that will lead to successful outcomes.
Happily, that still leaves a very large pallet of potentially positive scenarios.
And, happily, success is almost always the result.
