You’ve dreamed of buying your own house in Barrie but for some reason you can’t qualify for a mortgage, due to ever tightening qualifying restrictions. This has frustrated many young families who are struggling to break a cycle of renting. There are many reasons why someone might not be in a good position to buy their first home. The main reasons include; poor or lack of credit, employment issues, and lack of a down payment. In the Rent-to-Own process the applicant picks out the house, the investor buys it, they structure a lease that incorporates a standard monthly rent payment & a small monthly deposit. The accumulated deposits eventually will make up enough to cover a down payment & closing costs.
Credit Score Blues
When someone has poor credit, obtaining a mortgage in Barrie can be very difficult. The lender may require a larger down payment, this could amount to 25-30% of the purchase price. For most this is unattainable. Some find out when they apply for a mortgage that they don’t have enough of a credit history for the lender to base a lending decision on. Most in this scenario feel slighted because they haven’t abused or overly relied on credit, they falsely assume that this would place them in a good credit position.
An applicant’s employment situation could be causing problems with an approval. They could be newly hired, on government assistance or working commissioned sales. These situations could place a “road-block” on your path to home ownership. Lenders generally like to see long-term permanent full-time employment, anyone outside of this framework could be disappointed.
Down Payment Drama
Maybe it’s just a down payment that’s lacking? There are still “cash-back” mortgages out there but they require you have excellent credit & a long-term solid job. Many young families find it very difficult to have the discipline to pack away piece of every pay cheque. They may find a firm savings plan easier to work around, possibly one that can accumulate to a 5-10% down payment over 2-3 years.
The Right Applicant for Rent-to-Own in Barrie
If you fall into one or all of the categories mentioned above? Maybe a Rent-to-Own program is for you? One advantage is that you get to pick the house you want, you aren’t forced to pick from a list of preselected homes. Also you’ll be pre-approved for a specific amount before you go looking, so that you don’t stray from your affordability. Most programs do require a small deposit on approval, usually 2-3% of the purchase price. The investor wants to know that the applicant is serious before they go through the process of purchasing the house. In addition, the applicant is required to make a small deposit each month into this fund. By the end of the term the deposit money is returned to the applicant to be used as a down payment & cover closing costs.
The Small Print
The biggest risk to this program is the investor normally can hold-back the deposit funds in the situation where the renters either break the contract mid-term or fail to qualify when the contract has expired. They can use these funds to cover any costs the owner incurs to sell the property or find new tenants. So when applying for a Rent-to-Own program make sure you have a clear game plan to fix any possible application problems before your contract term is up.
It is best to sit down with a Barrie mortgage broker to determine if a Rent-to-Own Program would work best for your situation. Once your plan is in place, good luck house hunting!
Darren Robinson is a Barrie mortgage expert, dedicated to offering the best mortgage strategies and provides personal assistance to help people qualify for difficult mortgages and loans. Call 705.737.6161