Rent-to-Own (RTO) is one of the best options for people who have decided now is the time to start building equity in their own property, instead of paying into somebody else's. If you're considering the Rent-to-Own route; here is some advice that will help you discover how to successfully navigate your journey to homeownership.
The 12 Steps to Obtaining A Home Through RTO
Step #1
Speak with a REALTOR® Expert in RTO
Step #2
Introductory Call
Step #3
Proof of Income
Step #4
The Program Assigns Budget & Investor
Step #5
House Hunting
Step #6
Offer to Purchase
Step #7
Complete Home Inspection & Purchase if Satisfactory
Step #8
RTO Makes the Contracts
Step #9
Close & Move-In
Step #10
Build up your Down Payment & Credit
Step #11
Get Your Own Mortgage
Step #12
RTO Contract Ends and You Celebrate the Ownership of Your House
Reasons a Rent-To-Own Program May Be Right For You!
Families all over Ontario are using their rent money smarter to become homeowners faster. Here are some of the most popular reasons to Rent-to-Own if credit or low-down payment are holding you back.
1. Your monthly payments automatically add up. By the end of your Rent-to-Own term you will have a bigger down payment to help you qualify for a mortgage.
2. You pick any home that fits your lifestyle and your budget - detached, condo, town. Which property type makes sense for you?
3. You have piece of mind because the future purchase price of the property you pick is locked in at fair market value at the start of the Rent-to-Own process.
4. You'll have access to experienced professionals to help you become "mortgage-ready" by the end of the Rent-to-Own term.
5. You can prosper from the real estate market today and build equity while you're in the Rent-to-Own program. How much equity can you build as a renter?
6. Unlike renting, any modifications you make that add value to the home benefit you. Not your landlord.
7. You move into a more stable, better lifestyle today. Why wait to save a bigger down payment or clear up credit issues.
8. Decorate to your liking and love where you live. Why wait to live like a homeowner?
9. Your monthly payment is fixed for the duration of the Rent-to-Own term. No more rent increases.
10. You have total control in the Rent-to-Own process. You'll approve what you're buying, when you're buying and how much the property will cost. No hassles. No surprises.
WORK WITH A REALTOR® EXPERT IN RTO TO PRODUCE REAL RESULTS
You're entering a serious commitment when you sign onto a Rent-to- Own commitment. Here are some questions to ask so you can get to know the people who provide this opportunity:
Ask how long they've been in business; What makes them a strong choice for your arrangement; How do they help you succeed; How are they different from the other companies; Can you speak with any of their previous clients.
You Must Understand if Rent-To-Own Can Work For You!
#1. YOUR BUDGET MATTERS
It might be surprising to learn that monthly rent, down payment instalments, and utilities are not the only costs to cover when you Rent-to-Own. You must take into consideration seasonal costs, maintenance, and repairs, both planned and unplanned. So, take some time to establish a comfortable budget before you begin even looking at houses. And stick to it. If there are unexpected additional costs, a house out of your budget can result in late or missed payments which can overturn your success. Be careful not to fall in love with a house that exceeds budget.
If you're self-employed, the house you're buying should not only align with the income you earn, but also, the income the taxman has on file for you. Make sure you know exactly what income you need to claim on your tax returns to support the future purchase price of the home.
#2. YOU NEED TO HAVE SOME DOWN PAYMENT
If you're thinking you can get into a Rent-to- Own without having a down payment, think again. With Rent-to-Own, you typically do not need first and last month's rent - just a down payment along with your first monthly payment when you get the keys. If you are serious about getting into homeownership via Rent-to-Own, but don't have a small stash of cash, now is the time to start saving. You will improve your ability to succeed if you come into an RTO with a down payment. Expect to come up with at least five percent of the selling price of the house you are interested in.
Before you sign your next rental lease, consider revitalizing your down payment savings with the money you would have used for last month's rent for a home you can Rent-to-Own.
#3. DANGERS OF RUSHING INTO A HOUSE "RIGHT NOW"
Falling for a house that is available "right now" rather than waiting for the "right" house is a common reason homebuyers fail in a Rent-to-Own arrangement. Being motivated by a "move-in-quick" home can cost you thousands of dollars. Take your time house-hunting. You must love the home you choose to Rent-to-Own.
Do a thoughtful assessment of each potential property when searching homes with your REALTOR®. Compare multiple properties, scope out the neighbourhood in both the daytime and evening, and get a feel for the amenities to be sure you'll love living here for years to come.
#4. UNDERSTANDING YOUR MONTHLY PAYMENTS AND THE DOWN PAYMENTS SAVINGS
Rent-to-Own usually requires a bigger monthly commitment than renting, because a portion of your monthly payment goes towards your down payment to buy the house at the end of the RTO. That is of course unless you have a larger initial down payment. With $40,000-$60,000 towards your initial down payment, your Rent-to-Own monthly payments could be lower.
Generally, the lower your initial down payment, the higher your monthly payment will be. Between your initial down payment and your monthly down payment instalments, the goal should be to accumulate at least 10 percent of the future price. Having 10 percent down can greatly increase your chances of qualifying for a mortgage at the end of the RTO, especially if mortgage rules get tighter.
#5. KNOW THE FINAL PRICE ON THE HOUSE AT THE END OF THE RTO
The home you choose to Rent-to-Own today, will Increase in value by the end of your RTO term. So be prepared to pay more for it in the future than it is priced at today. Always know what appreciation rate will be used to calculate your future purchase price. This price will be in the Option to Purchase.
There are ways to determine what the fair appreciation rate should be, and a professional REALTOR® can assist. They can help evaluate how homes are selling in the areas you prefer, illuminate trends and development plans that may add value to a specific area as well.
#6. IMPROVING YOUR CREDIT IS CRITICAL
You might be considering Rent- to-Own due to your credit rating being less than perfect. We get it. Rent-to-Own can give you as much as three to four years to improve your credit score. But if you do nothing to proactively improve your credit during your Rent-to-Own period, you sabotage your chances of qualifying for a mortgage.
To get your credit on track you should understand how credit works and fully understand the important steps in the repair process. You will need to have a clearer understanding of how your credit report is determined, change your spending habits, or adjust money management methods to see improvement in your credit situation.
You must be totally committed to improving your situation because you will now have something to lose (your down payment and your house) You will be responsible to understand what you need to do to qualify for the mortgage, and work towards attaining it during your time in the Rent-to-Own.
#7. TAKE YOUR TIME BEFORE YOU SIGN
If you decide to Rent-to-Own your next home, you must hire a lawyer with expertise on Rent-to-Own contracts. You should devote the time doing your 'due diligence', asking related questions, review agreements, ask more questions before you sign on the dotted line.
There should be two agreements for your lawyer to review; the Lease (Rental) Agreement and Option to Purchase Agreement.
#8. HAVE A BUDGET FOR LEGAL ADVICE AND OTHER EXPENDITURES
Once you get approved for a mortgage at the end of the Rent To Own period, be sure to budget for closing costs (this include legal fees and disbursements) and mortgage insurance. In Ontario there are some exemptions for the first-time buyers to be eligible for a rebate in the "Land Transfer Tax".
#9. TOUGH QUESTIONS YOU NEED ANSWERS TO
Here are some of our suggested questions:
1. Can I pick any house? Anywhere? Any price?
2. What are the parameters for selecting a house? How much income do I need to get the house we want?
3. How long will I need to Rent-to-Own? How do I qualify for a Rent-to-Own? How much down payment is required? When do I pay the down payment?
4. Are there any extra fees that I will have to pay? How do you calculate the monthly payments?
5. How much will my monthly payments be? Is the monthly payment the same amount during the full term of the RTO agreement?
6. Will I have to sign two separate agreements (Lease and Option to Purchase)? Can I review the agreements before I must pay the initial down payment?
7. How much of my monthly payment goes towards my down payment of the purchase at the end of RTO? How much of a down payment will I accumulate at the end of the Rent-to-Own term? Is my down payment refundable if I choose not to buy the house?
8. Why are the monthly payments higher than if I were to rent?
9. How do you calculate appreciation on the house?
10. Who is responsible for repairs and maintenance on the property? What would cause me to get evicted from the property?
11. Can I do any renovations I choose (e.g., replace carpet with hardwood)? Can I have pets?
12. Does my income support the future purchase price of the house?
We encourage you to include questions that serve your unique situation. Once you receive the answers and understand them, you should be comfortable enough to know whether the people on the other end of the arrangement can be trusted.
All in all, the dream of homeownership can be a closer reality than you think. Now that you have tapped into
this information to success, you should be able to move forward with confidence and clarity before you risk
being priced out of the market and your rent continues to rise.
7 Reasons You Can Be Turned Down For A Mortgage
1. DIVORCE
The extreme financial impact of divorce can present challenges that can for you to re-organize your life in order to bet back on your feet financially.
2. NO CREDIT HISTORY
When considering giving you a mortgage, lenders want to know that you can pay them back.
3. PAST CREDIT PROBLEMS
Bad thing can happen to good people. It is very possible that you ran into tough times in the past and had to “miss”, “defer” or “default” on payments to stay afloat.
4. SHORT EMPLOYMENT HISTORY
Nowadays, many lenders want to see a consistent employment track record. This usually means that
they want to see more of one year of history with a company.
5. LOW DOWN PAYMENT
In order to approve you for a mortgage at a reasonable rate, you need to have more of 10% of down payment. A good rent to own arrangement should be Structured in such a way that helps you accumulate a large down payment over a certain period of time
6. SELF -EMPLOYED INCOME
It can be challenging for self-employed people to get approved for a mortgage. Lending institutions typically require at least two years of “Proof for Business Activity” and personal notice of assessments.
7. UNFORSEEN EVENTS TARNISHED YOUR CREDIT
If you or your family member have ever faced health issues or loss of job, you know first hand how it can negatively impact your finances. The credit bureau continues to track your bill-paying habits. It may not seem like much, but several month of missed or late payment can tarnish your credit.
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