1) How much money do we need for a down payment?
“The down payment required is a function of the purchase price and is subject to negotiation between the buyer and seller. Generally, we recommend that it not go less than 3% or $5000, which ever is greater to ensure all participants are serious. If you have the capacity to go higher then the monthly rental premiums will be lower. In either event, the objective is that the combination of the two will accumulate to the required down payment for lender financing at the end of your lease and option term.” [See RRSP Homebuyer Plan section if you are considering RRSPs for down payment.]
2) Does the down payment go towards the purchase price?
“Absolutely, when you buy, your entire down payment goes towards the purchase price.”
3) Do my monthly rent payments go towards the purchase price?
“Yes and No. Your monthly payment will generally consist of two parts. The first or base part should correctly be viewed as "market rent" and the second part viewed as a contribution towards your "down payment." When you eventually apply for your own mortgage, lender and CMHC rules dictate that only that portion of your monthly payment in excess of fair market rent (which must be established at the outset) can be used as down payment. So whether you are writing one monthly rent cheque with a fixed percentage credited back towards down payment or two seperate cheques - one for rent, and the other as a credit towards your down payment - it's an accepted form of down payment savings.”
4) Why do we need to pay more above the rent?
“As in the answer to the first question above, the combination of down payment and monthly rental premiums are calculated to enable you to accumulate the required down payment for lender financing by the end of your lease and option term."
Here's an example: Let's say your guaranteed purchase price is $300,000 and, when you go to qualify for a mortgage, the lender will require 5% down plus 1.5% available for closing costs: that's 6.5% of 300K or $19,500 required. Your rental premium is calculated such that when the time comes, you have ~$19500 in purchase credits. If you start with $10,000 down payment, and you need a 24 month term to establish your credit, a rental premium of ~$400/mo will land you in the right spot [$400/month x24 months + 10,000 upfront is $19,600]. Perfect! We want to make sure you can succeed with your rent-to-own purchase.
5) The down payment is too high!
“We will do our best to work out the down payment if you for sure want to be in the program. For example, many buyers borrow their down payment from a relative or parent willing to help. Others have some things with value that you could sell or we could accept in trade. You might even be able to make extra payments over a short time frame to get to the minimum down payment.”
6) The monthly payment is too high. Can you lower it?
“Perhaps you will be making more money in the next few months with a raise or more hours. Or maybe you'll be paying some debt off? Either of these will help you to afford the payment. Alternately, we can play with the numbers, perhaps with a bigger down payment or an increase in the end purchase price. We’ll do our best. Most importantly, don't get into a transaction your simply can't afford!”
7) What if we can't qualify in time?
"Based on the mortgage broker’s analysis and recommendations, there should be no reason why you wouldn’t get qualified if you follow the advice as outlined, otherwise we wouldn't recommend you consider rent-to-own. This is a discussion you should have, however, with the seller and get it in writing. You may be able to negotiate that as long as you keep making the monthly payments you can't be asked to leave. The trade off may be that at the end of the option term that you agree on, your price lock will expire and the purchase price will likely be adjusted to stay even with rising home values. Another solution is to get someone who can qualify for a mortgage to buy it instead."
8) Who pays for repairs?
"Negotiate into your option agreement, anything you have a problem with in the first 30 days the seller will take care of 100%. After 30 days, it's up to you just like when you own a home. You call the repairman, not the landlord. One of the conditions of most lease-option agreements is that you will be responsible for repairs. But make sure the seller will fix everything for the first 30 days so that you are comfortable that the house is in excellent condition.