Owner Financing in Edmonton, Alberta

Owner Financing Your Home

Are you tired of renting in the Edmonton area? It is true that renting does offer a lot of advantages to the tenant, so you will want to think carefully. You don’t have to worry about paying for major repairs to the property (although you may have a co-pay as part of your lease agreement), and while you want to keep things comfortable for yourself, you don’t have to worry about the long-term viability of the property. You also don’t have to pay property taxes on the home. Instead, you just write a check every month for the right to keep living there. Of course, as time goes by, you’re not building up any equity, like you would be if you owned the house and were paying a mortgage. Instead, each rent check simply goes into an empty hole; even if you lease the property for 20 years, when you leave, you don’t own any more of it than you did when you move in.

Owner Financed Homes Edmonton

This is why home ownership is a dream for so many Canadians. The idea of making a monthly investment that, over time, will turn into ownership of a house is one that is attractive to many. The vast majority of Canadians can’t afford to waltz right in and put down enough cash to cover the entire purchase price. Instead, they have to get financing to pay for most of it. For most people, the traditional path to financing goes through a bank or other similar lender. However, most banks want a fairly ironclad proof of your income stream, a credit score that meets their approval and a down payment of 5 to 20 percent. If you don’t have all three of these in place, then you will have a difficult time finding loan approval. It is true that some lenders are starting to take on stated income mortgages for self-employed individuals who have the assets in place to afford a home loan, but that is still a small sector of the mortgage business in Canada.

How Owner Financing Works

Owner Financing Mortgage in the form of a rent-to-own, on the other hand, is a common solution that many people have used in the past. Here’s how that works. You put down a deposit on the house, just as you would with a traditional lease. However, some of that deposit may end up going toward the purchase price, depending on what the owner/seller is willing to do for you. When you sign the agreement, you go ahead and agree on a purchase price for the house. So if the lease is two or three years in length, for example, when the lease ends, you will have the option to purchase the house for that price. This is risky for both of you; if the market really takes off and does well, you will be getting a bargain price for the home. If the market heads south, then you’ll be paying a premium if you choose to exercise the option. As you pay rent, an agreed percentage of your monthly payment goes into escrow to be credited toward your eventual purchase of the home.

For the potential buyer, the main risk comes at the end of the lease. If you can’t secure financing at that time and therefore can’t exercise your option to purchase the house, all of the rent credits you’ve saved up disappear, which means you’ve been really just paying rent the whole time. Also, any oversights or errors in preparing the document can cause the contract to be void. For the seller, the risk comes with putting a tenant into the house instead of a one-time buyer. All of the irritations that come with acting as a landlord, such as collecting late rent, managing maintenance and worrying about damage, are a part of your situation until the option time comes. However, you are receiving regular rent payments, and your home is bringing you a steady income.

These risks are the reasons why Amansad Financial no longer offers or promotes rent-to-own owner financing and does not put together owner financing deals: there are just too many risks on both sides, and too many people walk away either upset because they couldn’t qualify for financing or upset because they are stuck with a house that their tenant couldn’t buy — and then the tenant trashed it when he moved out.

At Amansad Financial, we instead recommend vendor take back seller financing. In this case, the seller is ready to move the property but does not need the proceeds immediately. Instead, the seller can afford to be the lender on the purchase as well. The seller then becomes the “bank,” in other words. The buyer makes a down payment and then starts making mortgage payments to the seller. In another scenario, the seller would offer a small loan to the buyer to provide a sizable enough down payment to satisfy the bank or private lender. Then the buyer has two monthly payments to make, but there is no risk of losing rent credits or (on the seller’s side) ending up a landlord forever. If you are interested in this type of arrangement, give one of our special lending professionals a call today!

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