The Pitfalls of Rent-to-Own Contracts

There is NO guarantee that you will qualify for a mortgage at the end of your term; hence you may lose your deposit!

  1. You are buying a home based on an estimated future value, so you could be paying an over-inflated price.  What happens if your house de-values over the term of your R20 contract?
  2. There can be (if the mortgage becomes 'private') hefty fees involved.
  3. You DO need an initial deposit (usually 5 -10% of the value of the home)
  4. Terms are usually 1-3 years, so if you're credit challenged, you may not qualify for a mortgage at the end of your contract.
  5. If certain documents are NOT completed upfront (for lender's future use), you won't get the mortgage.  Certain items such as an appraisal up-front, option purchase agreement, market rent reports and such must be completed and dated in the beginning.
  6. Only a handful of lenders will mortgage these.

When it comes time to finance your Rent-to-Own, you can waste a lot of time dealing with banks and lenders that don't deal with Rent-to-Own contracts.  Always connect with a mortgage broker who deals mostly with investors who thoroughly understand Rent-town and, most importantly, which lenders will finance Rent-to-Own.

Original article: https://dominionlending.ca/news/

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