Rent to Own

Rent to own is a very complicated process and normally takes place outside of organized real estate since there is no down payment therefore no commission until some hypothetical time in the future. Rent to own involves having your landlord, after securing an agreement to purchase with an agreed-to price and closing date, place part of your rent on deposit. In order to get a mortgage, banks may need to see that the amount that is set aside for down payment is (was) above the normal market rent for the property. (i.e. normal rent is $800 and your paying $1100 and $300.per month is set aside). The reason the banks may look for this is to ensure that the down payment did not come about as a result of a kickback from the seller, unknown to the bank, with a corresponding "false" and inflated selling price to make up the difference. This would be a case of fraud. This is one reason that banks have appraisals completed.

Other problems include the potential inconvenient answers to these questions, which have to be dealt with in the offer to purchase, or they will blow up later.

What happens if the market price of the home is less than I originally bargained for?

How can I predict what the interest rates will be in order to raise the amount of mortgage I will need at that future time?

Can I still get a mortgage if the interest rates go up for all that I need?

Will I get my money back if I can't raise the mortgage?

What happens if the market price of the home is higher than what I originally bargained for?

What if the seller doesn't want to sell since he knows its’ worth more than I bargained for?

What about things that go wrong with the house between now and then?

What is essentially happening in “rent to own” is that the landlord (seller) is saving money on your behalf. This is something buyers can do for themselves and maintain the flexibility of picking from many homes while working with a realtor at a time after pre-qualification takes place, which may or may not include the subject property.

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By Wayne Haroutunian
wayne@realestateguy.ca  •  www.realestateguy.ca

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Wayne Haroutunians' articles appear in many national real estate publications