Frequently Asked Questions
FQA For Rent to Own Clients
It is simple: You move into your home today under a Purchase and Sale Agreement to be executed at a predetermined date at a predetermined price in the future.
During your Rent to Own Program Term, our team of experts will work with you to get you “Bank” ready before the end of the Rent to Own period. The term of your Rent to Own Program is set to provide you enough time to clean up past credit problems or improve on any aspect of your Credit Profile or increase your cash flow for a down payment required by current Mortgage Guidelines.
In addition to helping with your Financial Profile, we will help you save enough money during the Rent to Own Term, so you have the required Down Payment for your Future Mortgage. A portion of your monthly payment goes towards rent/lease, and up to 20% of your Monthly Payment goes into a Savings Component used towards the Final down Payment for your future mortgage.
This savings component is often referred to as Option Credits (Credit given to you towards your Down Payment when you exercise the option to buy your home). The total savings accumulated during the lease are added to your initial Down Payment to form your final down payment at the end.
With our Rent to Own Program, you will know precisely what your Future Purchase Price, Down payment, and mortgage would be. This allows our team of experts to properly position you for a mortgage based on today’s lending guidelines.
The Down Payment required depends on your Credit Profile when you apply.
Remember, the only way a Rent to Own Program will be successful is if it ends with YOU getting a Mortgage. Therefore, we must ensure your Credit Profile and Down payment at the end of your Rent to Own Program is what the current mortgage guidelines demand. We do not make the Mortgage Qualification guidelines but must be guided by them to ensure successful Rent to Own campaigns.
The minimum Down payment is the greater of 3% or $ 10,000 Minimum*
We have a variety of options for funding your application. If you have 3% or $ 10,000 to start, there is an excellent chance we can help you get into your home “today.”
Please note that our team is an expert in Mortgage and Credit Improvement. If you have a low Credit Score, it does not mean you will be declined. If we can help you improve your Credit Score and Profile to bank standards by the end of the Rent to Own Program, we do not emphasize where your credit score or profile is today. But, again, we will work with you to get Bank/Mortgage ready!
If you have 3% or $10,000 and want to buy a home…Get Pre-Approved today!
Note: *Having the minimum Down payment Requirement does not mean you are automatically approved. The starting Down Payment may be subject to change.
If your Application is Pre-Approved, we require an activation fee of $850 plus HST.
The Activation fee is genuine to ensure you are serious about moving forward and completing the enrolment process. If you complete, the above portion activation fee is refunded to you!
Remember, a Rent to Own Program is ONLY SUCCESSFUL when you buy your home at the end. Therefore, we must ensure we have done the proper underwriting for your success!
Not everyone can be approved for our Rent to Own Program, and there are a few reasons a prospective rent-to-own tenant is declined.
Here are the common reasons for an application to be rejected…
- An applicant does not meet the minimum down payment requirements.
- The house you choose is:
- Too Rural
- Not in a Good State of Repair
- Applicant Income is not stable or verifiable.
- Applicant income does not support the Value of the Property you choose. A good Purchase Price guideline is five times your total household income.
- Applicant Credit Profile cannot be improved to bank standards by the end of a Rent to Own Program.
We do not restrict self Employed clients.
Most Self-Employed Applicants struggle to get Mortgage approval as many mortgage lenders have changed their policies to restricted Self-Employed on their pursuit of Home Ownership.
Remember, the ability to get into a mortgage at the end of your Rent to Own Program is the single most crucial component. We must ensure Self-Employed clients have the right “Credit Profile” lenders are looking for by the end of the Rent to Own Program.
As the home will be your future home, and as you are the tenant, you will be responsible for the upkeep of the Property.
Before any Rent to Own Program is started, there is a Home Inspection completed. This Inspection is to ensure all parties to the program understand the condition of the home.
If any repairs are done before or after the close, the repair schedule is agreed to before the program starts. This schedule will outline the repairs, estimated costs, and who will be responsible for their completion.
Once the program starts, the maintenance of the Property will be as detailed in the Lease Agreement between the tenant and the Investor/Funder.
Again, this will be your future home, so keeping it in a good state of repair will benefit you are the end!
When you make a Rent to Own Payments to your Investor/Funder, the investor is expected to use the funds to ensure the Property Taxes and Home Insurance are paid on the Property.
Yes, the type of Property is acceptable.
- Mobile homes do not qualify for our Rent to Own Program…sorry!
Before we start any Rent to Own Program, the Exit Strategy is clearly defined. What is an Exit Strategy?
The Exit Strategy is the All-inclusive plan to be executed to ensure you are ready for a Mortgage at the end of the Program term.
Everyone understands the expectations and what must be done to ensure a successful Rent to Own Program before it begins.
Unless something that could not be predicted happens, there should be NO Surprises at the end. If extenuating circumstances prevent the Rent to Own program from completing, we can extend the program to allow these circumstances to be overcome. If you have been a good tenant, there will be no reason not to extend.
NOTE: If you do not follow the Credit Improvement Program, do not make timely Rent to Own payments during the term or do something else that has not been discussed which will negatively affect your ability to exit the Rent to Own Program, there is a good chance we will not be able to extend the Rent to Own Program, and your Down Payment can be put at risk.
However, if you follow the program laid out for you, we have a VERY HIGH SUCCESS RATE!
We make every effort to research the area that has chosen to live. We use resale stats of homes sold over the last 12 months, and we try to be as conservative as possible when determining the Future Purchase Price. We access the same database as Real Estate Agents through Teranet and analyze the statistical information for the area.
We usually work with appreciations between 2 to 3% throughout Canada. However, when clients attempt to secure a Mortgage at the end of the Lease Term, we have found that most Appraisals are coming in significantly higher than the Predetermined Purchase Price. This is great as the client has unexpected extra equity.
If there is an unexpected market correction during the lease term, we can extend the lease so the house value meets the target price within six months. In some cases, we have ordered multiple appraisals and averaged out the Market Value. Hence, the client exited the program and transacted on that Average Value with the investor’s approval.
We use a Benchmark of 5 times Total Family Income
We do take in rental income and use 50% of rent to add to gross income. Our first concern is do you have any property management experience, and the rental unit might take longer to fill, causing financial hardship, which we don’t want. So we look at rental income on a case-by-case basis, not to qualify but to strengthen the application.
As Credit Management is Mandatory for the clients that need it, this “rarely” happens…. The main focus of our program is to give all clients a second chance. If our client fails to follow our program or does not disclose something, while it is not something we can control, we can still help! We may look at extending the lease and give our client enough time to smooth out the “bump in the road.”
The simple answer is “no”…not all! . Keep in mind, our investor has invested 25% for a Down Payment, they had Closing Costs and will have early discharge costs. Our policy is to refund any security deposit less cost to dispose of the Property. If we can back fill the Property with another tenant, 100% of the fee’s can be returned.
Below is a list of fees that may apply, keep in mind each rent to own program we build is different as it caters to our clients needs and each of our clients needs are different.
Please note all fees are estimated.
Closing cost in advance before the offer becomes firm:
- $375 and up for Appraisal ( Est cost)
- $850 and up for file activation fee, when live, we pull title and personal search
- $475 home inspection ( Est cost)
- $600 independent legal advice ( Est cost)
- Collections, writs, judgments, debts to be paid out from proceeds
- ILA Costs
Closing cost deducted from proceeds through a letter of direction:
- An equity position for investor
- 1% consulting fee to Rent to Own Funder – (if required)
- 1% brokerage fee to Citadel Mortgages
- $1,950 and up for consultant fee for your custom tailor exit plan (if required)
- Overall Guidelines… Location’s We Fund In:
- o British Columbia: Greater Vancouver area
- o Alberta: Edmonton to Calgary and cities, towns off Hwy #2 corridor.
- o Saskatchewan: Saskatoon, Regina only
- o Ontario: Windsor to Kingston along the Hwy 401 corridor, Cornwall to Ottawa valley, Toronto with double tax (call us for details)
- o Quebec: Montreal and Gatineau
- o Manitoba: Winnipeg
- Property Details:
- o Resale: Single-family homes with or without basement apartments, or up to 4 units (all rental components must be legal and retrofit). The square footage should be consistent for the type of homes in the area and must be supported by comparable and located within 45km of population of 5,000 or more. Although these houses should be listed on MLS, we will consider private sale (FSBO) only with an appraisal to support the market value.
- o New purchases: Generally fine if the HST is included in the purchase price. In Ontario, there is HST on non-owner occupied homes, making it impossible to transact.
- o Ineligible Properties: Commercial or mix-use, agriculture, industrial, island, cottage, recreational, or homes that are not prime or in good repair and no “as is” or fixer-uppers. Land cannot exceed 5 acres in size.
We understand everyone’s situation is different, and depending on the your exact needs that are preventing you from getting a mortgage, you will need other tools and options. We have a list of partners and service providers that work hand in hand with our clients as we build a solid succession plan and exit plan for your rent-to-own program. Such services are:
- Credit building
- Savings building
- Income and Sickness Insurance
- Budget and Goal Planning
- Credit Repair
Many options are available, and you will work with your rent-to-own specialist and our partners to build the plan for you before approval into the rent-to-own program.
Get in touch with your Reverse Mortgage expert today.