Rent to Own- the document could kill future qualification for financing!

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Are you a potential Rent to Own buyer who genuinely wants to own your own home?  Ask Phil 403-630-7952

Are you a seller who genuinely wants your Rent to Own buyer to complete the purchase?  Ask Phil 403-630-7952

Another video identified that Rent to Own does have its "Sharks" who feed off those who dream of home ownership.  The "Sharks" want to keep the home title, now and in the future.  They want market rent for their property.  They want to keep the additional money their "tenants" pay them during the rent to own period when they kick them out of the home because the tenant can not obtain financing by the closing date.

Genuine Rent to Own sellers want to sell their property.  They have taken a look at the local market conditions and have decided the conventional method of selling or the timing of their sale title change means Rent to Own is the best real estate transaction method for them to use.

Rent to Own contract language is important for the success of closing by closing date.  The elements of the contract include Price and Closing Date.  And, even though the buyer may not qualify TODAY for home financing, there is a condition of purchase that proper financing to complete the transaction is available to the buyer. 

Typical real estate offer to purchase contracts have price and closing dates.  Usually, there are conditions to the purchase agreement. Some of these include appraisals, home inspections, and permit or by-law reviews.  One of the most common conditions is "subject to financing".   In typical real estate offer to purchase contracts a deposit is offered.   But, the deposit is typically refundable to the buyer making the offer, if they have made all reasonable efforts to meet the condition of financing identified in the offer to purchase.

There are variations to the typical offer to purchase contract in a Rent to Own:

Often, just like the typical offer to purchase, there is an initial deposit.  For example, say the deposit is $5,000.  That $5,000 is refundable to the Buyer if the condition of financing can not be met.

The Rent to Own often includes additional monthly deposits.  For example, say the Rent to Own buyer needs $20,000 as a down payment.  Less the initial deposit of $5,000, the agreement is to pay $750 per month as deposits on the home.   That means the $20,000 will be assembled over a 20 month period. 

IF the initial or additional deposits are not refundable, the lender does not treat them as down payments.  The additional money paid is considered AN OPTION.   An option is a fee paid to hold a property, it is not a down payment on the property.

A RENT to Own also means that only money paid that exceeds "Market Rent" is considered an accumulation towards the down payment.   In order words, if you have a Rent to Own agreement, if market rents for the home is $1500 per month, it will serve no purpose to say the rent is $500 per month in order to boost the appearance of a faster growing cash accumulation towards the downpayment.

Rent to Own has an exteeeeeeeened "condition to financing" date.   Sellers and Buyers should be aware that default insurers also approve default insurance based on their estimate of value at the time of mortgage approval (a future date close to closing date).  If property values are estimated lower than the sale price, they will use the lower value to determine financing amounts.  

The Seller accepts the extended condition date because:

  • The agreed price, less selling costs, seems better than conventional marketing offers; or,
  • The timing of title transfer meets  the seller's tax or other financiial planning objective; or,
  • The seller wants a potentially more motivated tenant, paying market rents.

The Buyer seeks a Rent to Own property because:

  • The Buyer has a credit issue that can be resolved over time; or,
  • The Buyer has divorce/separation isse and does not want title; or,
  • The Buyer does not meet conventional financing income qualifications; or,
  • The Buyer has not saved sufficient down payment to immediately compete the transaction 

What else may improve the chance of a successful completition of a Rent to Own transaction?

Buyer Support

The issues that stop the Rent to Own buyer from obtaining financing today, may still be the reason the buyer can not obtain financing in the future.

  • IF the amount of debt or the payment history of debt is the issue- do they have a coach to monitor their success?
  • IF the type or amount of income needed to qualify is the issue- do they have a coach to monitor their success?
  • IF the amount of down payment needed to qualify is the issue- do they have a coach to monitor their success?