The cards are slowly being stacked against first-time homebuyers and those that want to re-enter the housing market as rule changes and rising interest rates become the norm of the day.
Forget that life as we know it today includes debts, credit issues, inflation and likely smaller salary increases then we would like to see, it is no wonder that more and more people are being forced into renting or, ahem… moving in with family and friends.
Beyond the down payment (5% with good credit or more with blemished credit and a minimum of 7.5-10% on homes over $500,000), there are also other expenses you have to take into account. Expenses such as land transfer tax, legal costs and moving costs.
The truth is, this might be one of the toughest times in recent history to get qualified for a traditional mortgage, especially if you don’t have a large down payment or have a few credit challenges that you didn’t know existed before.
All of this said, home ownership is still attainable and it is very profitable. You just have to know what your options are.
Rent to own (or lease option) is a perfect strategy for any potential home buyer that finds them struggling with credit or down payment issues or has the 5% down payment but cannot come up with the 2% closing costs.
Renting is not the only option…
Rent to own provides you with the opportunity to shop for a home you “really” want and would likely purchase if you could qualify for a traditional mortgage today. Yes, you should still ensure that you stick to YOUR budget, rent to own does not avail you the opportunity to buy homes above your acceptable price point. This brings up a good point, what is your price point and how should you determine that? First off, you have to be comfortable with the monthly payments. Yes, they might be a little higher than you are used to (considering that a portion of the payment is contributing to growing your down payment – think of it as forced savings) but you should not get a fever and cold sweats from your monthly payment. There are lots of great affordability calculators out there you can use to determine how much you should be budgeting for. Use them. They could make the difference between getting the mortgage in the future and not getting the mortgage. One piece of advice, be sure to fill in the required information accurately and honestly. You are not doing yourself a favour by avoiding to fill in the correct information.
Struggling with getting your credit just right? Either establishing or re-establishing after a consumer proposal or bankruptcy? With a rent to own, you can still pick the house you want to live in and own today but give yourself the time needed (usually 2-4 years) to improve your credit so that you can qualify for the mortgage on the house at the end of the rent to own term. Instead of continuing to rent, trying to save the down payment AND repair your credit so you can achieve the goal of owning a home at some point in the future (who knows how expensive homes will be at the time you are finally ready to qualify for your own mortgage), you can be doing all of these things while ALREADY living in the house you want that fits your needs and your budget.
Life is life. We all know this and outside of the one guarantee (of eventually passing from this world), the other close second guarantee is that is tougher than ever to save for a down payment. The price of houses is increasing monthly (it seems) which means that your down payment target keeps increasing too. On top of it all, the cost of living continues to outpace our income growth which means that you continue to put less and less in the bank. Let’s not even talk about the car repairs, vacations, birthdays etc. that are constantly pulling at our savings strings. Rent to own is a complete program where you are putting a portion of your monthly payment towards your down payment every month. Call it forced savings (we do) because as you contribute to your down payment every month, the equity stake you have in your home increases at the same time. Best of all, you cannot withdraw any of the forced savings so you can rest easy that taking a trip and using your savings from your bank account won’t have a negative impact on your ability to build up your down payment and qualify for that mortgage at the end of the rent to own term.
It is critical that you improve your credit and build up your down payment while in the rent to own program BUT equally important is selecting the right house. For my dollar, I wouldn’t want someone to tell me to select between one house or another, I would want to have the chance to choose the house that I want… one that fits the budget BUT also the needs of my family. Not only does this include finding the perfect “3” or “4” bedroom house with a two car garage for example but it also includes finding the right property that is going to be close to transit, highways, schools, parks and shopping. Let’s put it this way, you should love the property and enjoy coming home to it every night in order to succeed in rent to own. After all, would you let the Bank tell you what else to live in? Likely not so why would you let a rent to own program?