Amansad Financial Services, Inc. has long been familiar with the rent-to-own process. While many people have used this process to try to move from renting to owning a home, there are quite a few potential drawbacks, and anyone considering this arrangement should be aware of them. Here are just a few of them:
1. You can end up throwing money away and wasting time that you could have spent in a home that you own. When you sign a lease-purchase agreement, you are contracted to stay in the house for the full term, until the point when you can opt to buy the house at a set price. If you have managed to line up the financing for the purchase at that time, then you can move forward. However, if you cannot move forward for any reason, your rent credits and your down payment all go to the owner, and you have no credit toward the value of the home. Some exceptions do apply.
2. A poorly worded contract can strip you of rights you thought you had. A lot of people bill themselves as rent-to-own “experts” or “professionals,” but they do not know how to word the contracts correctly. If the contract is not worded correctly, you can have the whole purchase voided at closing, even if you’ve made all of your rent payments on time and have the loan for the purchase all squared away. If you are going to move forward with a rent-to-own contract, pay an attorney to draw up the paperwork so that it complies with the policies of your mortgage lender and CMHC/Genworth regulations.
3. The property may not appreciate like you think it will. When you sign a rent-to-own agreement, particularly in the existing market, it is likely that the purchase price takes into account the possibility that the home’s value will go up. If the real estate market does not appreciate like you think it will, you can end up purchasing the house at a price that is higher than it should be. This can lead to a situation in which your LTV (loan to value) ratio on the mortgage goes against your lender’s regulations, and you can end up losing the option.
4. You may receive poor credit advice. During the time between the signing of the rent-to-own agreement and the purchase date, many tenant buyers have to figure out their credit issues on their own. If they do not make the necessary repairs to their credit, they cannot qualify the purchase. This, once again, causes the tenant buyer to forfeit all of the rent credits and the down payment. It is crucial to partner with a reputable credit literacy service to ensure that the buyer’s credit is ready for the purchase.
5. You might be dealing with a predatory investor. Most of the property owners who are willing to use a rent-to-own arrangement with a tenant buyer are ethical people who are looking to make a profit off their property, but to do so fairly. Some investors, though, look for tenant buyers who are likely not to qualify and lure them in to an agreement. Then, at the end of the contract, they simply keep all the money and look for another rube to sign another agreement.
Because of the inherent risks at work with a rent-to-own agreement, Amansad Financial Services does not promote this type of arrangement. If you are not ready to purchase a home, Amansad Financial recommends an alternative like continuing to rent until you are ready to qualify for a purchase or moving into a seller finance arrangement. In this situation, you actually are the owner of the property. You have to make a bigger down payment in most cases with this arrangement, but it is also a more secure situation for you.
If you are committed to moving forward with a rent-to-own contract, we have contacts to whom we will refer our clients. We have built positive relationships with these contacts and trust them. However, we will not handle that sort of deal with out own clients. We have a number of alternative programs in place for buyers who cannot qualify through traditional sources, and if you are coming to the end of a rent-to-own contract and must purchase or risk losing the house, we have some alternative financing solutions to suggest for you.
If you think Amansad Financial Services can help you with your home ownership situation, give one of our financing professionals a call today. We look forward to helping you!