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Roberto Vivas

I’m thinking about buying a home through a rent-to-own arrangement. What do I need to know?


If you don’t have the down payment or the credit score to get a mortgage, a rent-to-own arrangement may seem like a good option to buy a home. However, as with any agreement, it’s important to understand what you’re getting into.

In a typical rent-to-own arrangement the tenant signs an Option to Purchase agreement with the existing owner of the property. The tenant agrees to pay a fee in exchange for the right to buy the home at a later date, at a set price. Each month, as the tenant pays the rent, a portion goes towards the fee and a potential down payment on a future mortgage.

The idea is that, when it comes time to buy the property, the tenant will have a deposit large enough to qualify for a mortgage. Unfortunately, the reality of rent-to-own arrangements sometimes doesn’t live up to the tenant’s expectations.

Even if you trust that the seller offering the arrangement is legitimate, it doesn’t mean that it’s a good deal. Crunch the numbers to figure out how much you’ll be paying each month, and how much will be going towards your down payment. Also consider whether the contract terms are flexible enough and whether the ultimate “purchase” price is reasonable. Since the rent-to-own arrangement typically includes those extra fees, you might be better off moving into a traditional rental and saving up for the down payment on your own.

These contracts are typically very complicated so I strongly recommend that you get your own legal advice, not from the lawyer representing the seller. As with any legal contract, you should understand everything before you sign. Keep a special lookout for clauses that could lead to major consequences if your rent is late just one time. You should also confirm who the owner of the property is by visiting your local registry office.

Rent-to-own is an alluring option for those who might not be able afford a home otherwise. But it’s definitely a case where consumers should proceed with caution.

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What the first step of the home buying process?

Step 1: Start gathering a down payment

The very first step every first-time home buyer should tackle is to figure out their finances. Buying a home (particularly for the first time) requires a mortgage, where a lender fronts you the money and you pay them back over time. However, in order to get a mortgage, you'll need to put down some sort of down payment.

So how much do you need? Ideally a down payment on a mortgage should be 20% of the home's price to avoid added fees, but if you don't have that much, don't worry. A mortgage down payment can be as low as 10%, 5%, or even 0%.


Step 2: Check your credit score

In addition to having a down payment, a first-time home buyer will need a decent credit score. This three-digit number is a numerical summary of your credit report, a detailed document outlining how well you've paid off past debts like for credit cards and college student loans. A lender will check your score and report in order to estimate the odds that you will deliver your monthly payment to them, too. In turn, they will use this info to decide whether or not to loan you money, as well as how much, and at what interest rate.

If a lender sees some late payments or other blemishes in your credit report, this can lower your odds of getting a loan with a great interest rate, or perhaps even jeopardize your chances of getting any loan at all. So, it's essential to know your score, and take steps now if necessary to bring it up to snuff.


Step 3: Get pre-approved for a mortgage

Before you head out home buying, you should seek pre-approval from a lender for a home loan. This is where you meet with a loan officer, ideally a few at various mortgage companies. Each mortgage lender will scrutinize your financial background—such as your debt-to-income ratio and assets—and use this info to determine whether they're willing to loan you money, and what size monthly payment you can realistically afford. This will help you target homes in your price range. And that's good, since a purchase price that's beyond your financial reach will make you sweat your mortgage payment and puts you at risk of defaulting on your loan.

As a buyer, just keep in mind that mortgage pre-approval is different from mortgage pre-qualification. Pre-qualify, and you're undergoing a much simpler process that can give you a ballpark figure of what you can afford to borrow, but with no promise from the lender. Getting pre-approved is more of a pain since you'll have to provide tons of paperwork, but it's worth the trouble since it guarantees you're creditworthy and can truly buy a home.


Before they even meet with a lender, one step home buyers can take to begin understanding what they can afford as a monthly mortgage payment is to plug their info into an online home affordability calculator. This will calculate the maximum amount you can afford as a monthly payment.


Step 4: Find a real estate agent

I will help you find the right houses, negotiate a great real estate deal, and explain all the nuances of home buying along the way. I have a passion for assisting clients with various real estate needs. I am a trusted and well trained professional who strives to provide you with the best solution.

Should you have any questions please do not hesitate to contact me.


Step 5: Go home buying!

This is the fun part! As a buyer, you can peruse thousands of real estate listings on sites such as realtor.com, then ask your agent to set up appointments to see your favorites in person. Since the sheer number of homes can become overwhelming, it's best to separate your must-haves from those features you'd like, but don't really need. Do you really want a new home or do you prefer a fixer-upper? Make a list of your wants and needs to get started, and whittle down your options.


Step 6: Make an offer

Found your dream home? Then it's time to make an offer to the seller.


Step 7: Get a home inspection

A home inspection is where you hire a home inspector to check out the house from top to bottom to determine if there are any problems with it that might make you think twice about moving forward. Think: termites, faulty foundation, mold, asbestos, etc. Sure, a lot can go wrong, but rest assured that most problems are fixable.


Step 8: Get a home appraisal

Even if you got pre-approved for your home loan, your lender will want to conduct a home appraisal. This is where they check out the house to make sure it's a good investment. It's similar to a home inspection, but for your lender. Here's more about the home appraisal process and what to expect as a buyer.


Step 9: Head to closing

Closing, brings together a variety of parties who are part of the real estate transaction, including the buyer, seller, mortgage representative, and others.

Closing is the day you officially get the keys to your new home—and pay all the various parties involved. That will include your down payment for your loan, plus closing costs, the extra fees you pay to process your loan. Closing costs can be sizable, averaging anywhere from 2% to 7% of the home price.


Step 10: Move in!

Done with closing? Got your loan? Congratulations, you've officially graduated from a buyer to a homeowner! See, the home-buying process wasn't so scary after all, right? Now it's time to kick back and enjoy the many benefits of becoming a homeowner.



How much should I give as a deposit?

There is no set amount, amounts vary by local custom.


What is the purpose of the deposit?

The deposit demonstrates the commitment of the buyer to the seller to complete the purchase.


What does home staging mean?

Home staging – this literally means, getting your “set ready” for buyers. In other words, cleaning your home from top to bottom including carpets and drapes, kitchen and bathroom tiles, walls, ceilings and trim. Next, dispose and declutter which entail getting rid of those items in your home that make rooms feel smaller than they actually are. Then, organize. Tidy up cabinets, bookcases, closets and toys and put away personal items such as photographs, souvenirs and other memorabilia. If your home has empty rooms, stage it with the right furniture. You may be able to borrow some nice furniture from family or friends. There are even places to rent furniture for staging. Keep it simple and classic, nothing too trendy that could potentially turn off a buyer


What do I need for an Open House?

A successful open house is key for generating quick interest in your home. Some last minute tips? Make your rooms bright and airy by opening blinds and windows and turning on lights in darker rooms. Help the buyers imagine themselves in your home by setting the dining table or putting out some fresh flowers. Light a scented candle. Leave some refreshments out. And for your own security, make sure you store all your valuables. When the open house is over, ask for feedback so you can make a few tweaks before the next one


Are you a Newcomer in Canada? Would you like to get more information about Renting or Buying a property?

For more information click here.


Government of Canada Programs to Support Homebuyers