Many people have probably seen real estate listings or ads in the newspaper that advertise a “Rent-to-Own” option available to qualified Buyers. While rent to own may seem like an appealing option for people with no down payment or poor credit scores, they often end-up being one of those “too good to be true” scenarios.
One of the main issues with rent-to-own is that the “Tenant/Buyer” is lacking any/all financial security. In most circumstances, a contract will be signed detailing payment terms and in most cases default on one payment by the Tenant/Buyer will lead to immediate eviction and loss of all funds invested. Because this is a rent-to-own contract regular tenancy legislation does not apply to the Tenant/Buyer. You may not think that this is a big deal BUT in most rent-to-own deals the “rent/mortgage” payment is inflated to include money to be held for a future deposit. So if the mortgage was $1,000/month and $10,000 was required for a down payment when the “lease” term was up (let’s say it was a 2-year contract) you would be paying an extra $417 to the “Landlord/Seller”.
This is where they get you...
If you default on ONE payment throughout the 2-years (miss a payment or are late on a payment) or you cannot secure financing through a mortgage when the 2-years is up, you not only lose the house BUT you forfeit the extra money you have paid towards your “deposit”. The Landlord/Seller are hoping that the person they have in contractual obligation is going to default, because not only are they have the mortgage paid for on the house plus all utilities and property taxes BUT they get to keep the money the “Buyer/Tenant” has paid towards the deposit. The Landlord/Seller knows that there is a good chance that the Buyer/Tenant will default; whether through missing or being late on a payment or not being able to get financing at the end of the term. This will more than likely happen because the Buyer’s looking for a rent-to-own situation are people who are not financially responsible in the eyes of lenders. Their inability to secure regular financing for a home because of poor credit indicates that they have been delinquent in the past. Also not having enough of a down payment also is a strong indicator that the Buyer is not the best with money. So in general, these type of Sellers are looking for people that will hopefully default.
With all of this said, there are some cases where a Rent-to-Own works out, but they are few and far between. If you are having trouble securing a regular mortgage or would like more information about other financing options give HomeLife Emerald Realty Ltd. Brokerage a call at 705-424-0770 and we can discuss other, financially safe, options that are out there to help you get into a home.
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