Among the election goodies offered by our Prime Minister in this election campaign was a promise to address the housing crisis with a rent-to-own program.
It was likely the first time that the rent-to-own concept was endorsed at such a high level.
It affirms the growing credibility of the rent-to-own model as a means of getting people into their dream of home ownership.
The trend has been building for many years but, like everything else, new ideas take time to develop into credible models and momentum to build. But that is now happening; rent 2 own is becoming mainstream.
Why is this happening? I offer five reasons:
- The ever-increasing difficulty in getting a mortgage
It used to be easy to get a mortgage. When I wanted to build my first home (waaay) back in the day, I simply went to my banker. Since I was self-employed, he asked how much I paid myself. I said, “I try to make $12/hr.” “And how many hours a week do you work?” “About 50.” (I was framing houses in Saskatoon; it was late August and throughout the summer we’d worked about 10 hrs a day.) He did some quick calculations, multiplying $12 x 50 hrs x 52 weeks, and told us we were approved. (Are you kidding? In winter, in Saskatoon, I’d be lucky to get in 30 hours a week and to make $6/hr.)
Now, it takes document after document after document. You have to prove your income, sometimes going back 2 years, get letters of employment, prove where your down payment is coming from, have a great credit score, plus numerous other criteria on your credit report, and more. Then, the government-mandated stress test means that you have to qualify at a far higher interest rate than the one you will actually get.
Not only is it difficult to meet all the qualifications, it’s challenging—and beyond the scope of most consumers–even to figure out what the qualifications are. Doing what you think is right is often not adequate, and many are surprised when they discover that they don’t qualify.
Rent 2 own address these issues, bridging the gap to bring consumers to mortgage qualification standards. Professional rent-to-own operators are apprised of the requirements and set up a plan to get their clients to eligibility within the term of the contract.
- The runaway home prices
Everyone knows that home prices are escalating rapidly, preventing many who’d planned to get into homeownership from doing so in the time-frame they’d hoped. So, they turn to rent 2 own as a solution.
Unfortunately, rent-to-own operators cannot qualify you more generously than the lenders; they can only buy you time to meet those qualifications. But, at the same time, they secure the future buyout price for the property, shielding you from a crazy escalating market while you work toward qualifying.
- The frequent turnover of properties
This is really a corollary of #2. Despite protests that rents are way too high, renters need to know that most landlords make very little, if anything, on their monthly rental income. Where they make the most money is on writing down the mortgage principal and on property appreciation. So, when the market takes off, like it has in the past 18 months, they capitalize on their opportunity to make a profit.
Renters hate this, and rightly so! “My landlord is selling the home I’m renting, and I need to move . . .” is a refrain I hear repeatedly. “I’m tired of having to move over and over again. I want my own permanent place.”
I hear you.
- A cry for help
This is really a corollary of #3. Amid a housing shortage, rising rent rates, not rising incomes, repeated forced moves, etc., some people become desperate.
“Is there any other way?”
They search for an alternative, and discover rent 2 own. In desperation, they apply. In some cases, rent 2 own may work; in many, however, it cannot bridge the gap between current circumstances and lending requirements.
While the rent-to-own provider can be sympathetic to the plight of the inquirer, unless that inquirer is “within shouting distance” of getting qualified, the provider cannot get them into a program that might lead to success.
But, like some of my applicants say, “It was worth a try!”
- The increased professionalism in the industry
The growing credibility in the industry is making it an increasingly attractive option for many who can’t yet qualify for a mortgage.
Forty years ago, the rent-to-own industry was like the wild west: ad hoc, with lone rangers disconnected from one another—and the lending industry—and with too many sharks taking advantage of naïve clients.
Then the more professional operators started working with teams that included lawyers and mortgage professionals. The experienced operators started writing about the industry and holding professional seminars and training programs, where they promoted the concept of “client-first” and “win-win operations,” with the primary goal being the success of the client. I, myself, took such a course ten years ago and jumped into the industry because I saw it as a way of helping people get into home ownership, while providing me a living. In those ten years, I have, myself, had the opportunity to coach others entering the industry.
Then, in 2013, came the professional association, CAROP (The Canadian Association of Rent to Own Professionals), an association to hold one another accountable to ethical and professional operation, and give the public confidence that they were dealing with reputable people. So far, neither the federal nor provincial governments have stepped in to regulate the industry. In that absence, the Association is filling a needed role.
With the federal government now also acknowledging the merits of the industry, it is likely that growth trajectory will continue.
At least, that’s how I see it . . .
