In some markets, it can take a long time to sell a property. An option available to some sellers is the Rent-to-Own sales method.

If you have someone interested in purchasing your property but they can’t obtain a mortgage either because they don’t have a down payment saved or their credit score is too low, this can be way to purchase a home. Usually the agreements run for 2 – 3 years.

A sales agreement is signed which states what the tenant and future owners are going to pay as rent while they save up a down payment and /or improve their credit score. The agreement has to state how much of their monthly payment is going towards the down payment. They also have to be paying market rents. In addition, the agreement must state that if the deal is cancelled the purchasers will get their down payment funds returned to them.

The reason that this must be stated in the agreement is that the mortgage insurers like Genworth and CMHC stipulate these terms must be in the agreement before they will approve a mortgage.
What are the pros and cons of this type of an agreement? The pros are that the tenants will maintain the property and not abuse it as they want to purchase it. The seller gets steady income while the buyer is saving for the purchase. The con is that as the price is determined in advance – radical changes to the local housing market may mean that the purchaser will get a great deal at the end of the agreement or walk away if the market drops significantly.

If you are considering this option, consult with a Dominion Lending Centres mortgage professional before you sign an agreement. They can determine if it will be valid with the mortgage companies and insurers before you’ve spent a cent.

Written by David Cooke