Rent-to-own a home: Beware the risks
In today's ever-changing mortgage market, renting to own is an option many consider in lieu of a traditional mortgage, but who does the agreement benefit most?
As lending regulations become tighter, many potential home buyers find themselves in the position of being able to afford a mortgage, but may not qualify for one. A damaged credit report or insufficient employment history can affect an applicant's ability to obtain traditional mortgage financing, and renting to own can start to look like an attractive option. However, as we learn in this Moneyville article, a rent-to-own scenario benefits the homeowner rather than the renter.
In a rent-to-own deal, the renter pays an inflated rate for rent, a percentage of which goes toward a down payment on the home. Ideally, at the end of the lease, the renter will be capable of qualifying for a traditional mortgage. It should be noted that depending on how the contract is drawn, a tenant can lose a large percentage of what they have invested if they decide to terminate the agreement, or make a late payment.
Before considering renting to own, talk to an Ottawa Mortgage Broker to find out about alternative lending solutions. In some cases, it may be more suitable for a potential home buyer to wait the year or two it may take to save the extra money needed for a down payment, or repair damaged credit.