Are you tired of paying rent and exhausted from dealing with inflexible banks?
Well, you are not alone. Banks and traditional lenders are tightening their belts when approving mortgage applications. This means many people with good incomes are faced with circumstances that make it next to impossible to receive conventional bank financing if:
- You lack an established credit history
- You have poor credit
- You are self-employed with less than 2 years of company history
- You have credit challenges due to job loss, health issues, divorce or bankruptcy
- You are in consumer proposal
- You don't have as high a down payment as lenders and CMHC require
If you fall into any of these categories, and are finding it very difficult to buy a home despite having the necessary 5% down payment, you should consider a "Rent to Own" program (aka "lease to own").
There are different variations of rent to own. However, one recent program is quite interesting in that it allows you to choose the home you love, in an area you desire, at a price you can afford.
A desired lease period is then determined to give you the time you need to correct any issues keeping you from getting financing from traditional lenders. Whether you need to repair your credit, or amass a more sufficient down payment, all of this is done without you wasting another dime on rent.
For this example, we are using a home to be purchased for $200,000 with a two-year lease.
Category The Lowdown More Lowdown
Rental term 2 years Typically between 1 to 3
Initial Down Payment 5% of $200,000 $10,000
End of Lease Purchase Price 5% increase/year $220,500
(Subject to change)
Monthly Lease $1,360
Monthly Option Credit Goes to Final Down Payment $340
Total Monthly payment $1360 + $340 $1,700 + utilities
Down payment saved (2yrs) $340 x 24 months $8,160
Total Down payment available $10,000 + $8,160 $18,160
Amount to Purchase $220,500 - $18,160 $202,340 (at end of the lease term)
So if you want to move right now, perhaps this program will work for you; talk to your mortgage broker or realtor. (You won't want to get into the lease-to-own world on your own; there can be pitfalls.)
Roy Singh is the broker of record at Century 21 Home Realty Inc. in Waterloo, Ontario.