Careful consulting at the beginning of a rent-to-own deal is key to ensuring underwriting guidelines are met, say brokers and industry professionals.
“The real problem getting financing for rent to own at the back end is that the deal doesn't meet underwriting guidelines, not that anything is wrong with ‘rent to own’ itself,” Andrew MacDonald said on MortgageBrokerNews.ca. “On the last deal I did, our client is purchasing at five per cent down even though they have 11.5 per cent worth of credits towards the purchase price and they're still getting a rate of 2.95 per cent.
“Most lenders will fund rent to owns if the deal meets underwriting criteria, down payment is properly documented from the outset, and the contracts are properly written with clauses required by CMHC.”
The discussion was sparked by an article about the benefits of rent to own deals for clients, investors and brokers. And while brokers agree that R2O can be an appropriate method for certain clients to break into home ownership, credit counseling is also a necessity.
“We're finding a very common issue with these presently as clients come to us with previous rent to own of two or three years ago now wishing to execute their purchase option, however many lenders will now not facilitate the financing to use the ‘credit’ of the rent as eligible down payment,” James Loewen of the Loewen Group said on MortgageBrokerNews.ca. “That and most renters weren't given credit counseling, sadly, to repair and establish credit that would qualify for a 5 per cent down purchase.