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Rent to Own Mortgage

A Rent to Own Mortgage is a contract in which a potential homebuyer is able to live in the property they wish to purchase and pay rent for a period agreed upon by the tenant and landlord. A portion of the tenant’s rent goes towards their eventual down payment, which allows them to purchase the property at the end of the contracted period.

This program gives potential homebuyers new options in purchasing properties that they might not be immediately able to. This includes potential homebuyers who

  • Suffer from bad credit
  • Cannot immediately afford a down payment
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    Is a Rent to Own Mortgage better than a traditional Mortgage?

    A Rent to Own Mortgage is an attractive option for those who are unable to get a traditional mortgage, either because of bad credit or a lack of finances. However, potential homebuyers should be extremely cautious when entering any sort of agreement and make sure they have made the due considerations, such as:
     
    • More often than not, Rent to Own Mortgages ultimately favour landlords over tenants, meaning if there is a issue at the time of purchase, it is unlikely to be decided in the favour of the tenants
    • For those with poor credit considering this option, you should be sure that the time allotted for your agreement is enough for you to recover your credit rating and increase it to a level that you will be able to purchase the property by the end of the contracted period.
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    How is a Rent to Own Mortgage structured?

    A property owner will rent out their home to a potential home buyer with a specific contract that indicates the tenant’s intent to purchase the property at the end of the period, this can be anywhere between 3 to 5 years. For the tenant to still be viable to purchase the property at the end of the contract, they must adhere to any and all conditions agreed to in the Rent to Own agreement. The two parties will then decide on the rental amount and the amount which will go towards the down payment. Usually 75% of the monthly payments go towards rent, while 25% go towards the down payment.

    How long do you have to be self-employed to get a Mortgage?

    To obtain a Self-Employed Mortgage, most financial institutions will ask that you provide personal tax notices of assessment for at least 2-3 years within your mortgage application. This proof of self employment for a significant period of time gives the borrower confidence in your ability to pay back your mortgage consistently throughout its term and gives you access to the same mortgage options as people who are not self employed. If you are not able to supply proof for a significant period of self-employment, you could still be eligible for a mortgage, provided you have a strong credit score, usually 700 and above. and are able to give a minimum of 10% as a down payment.
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    How can I increase my chance of getting approved
    for a Self-Employed Mortgage?

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Speak to a financial advisor

    A financial advisor will help you understand exactly what your current situation is in relation to your debts, current loans, personal and business expenses and total income. Understanding your finances and identifying and correcting any outstanding arrears is crucial to being approved for a loan.

     

    Maintain a strong credit score

    Even for those opting for a no document loan, a credit check is unavoidable and will prove to be the deciding factor if you get approved or not. Maintaining a strong credit score will signal to the borrower that you are a trustworthy lender.

     

    Speak to a financial advisor

    A financial advisor will help you understand exactly what your current situation is in relation to your debts, current loans, personal and business expenses and total income. Understanding your finances and identifying and correcting any outstanding arrears is crucial to being approved for a loan.

     

    Maintain a strong credit score

    Even for those opting for a no document loan, a credit check is unavoidable and will prove to be the deciding factor if you get approved or not. Maintaining a strong credit score will signal to the borrower that you are a trustworthy lender.

     

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    Commonly Asked Questions

    You should be self employed for at least one year before considering a Self-Employed Mortgage, however waiting until you have 2-3 years of income to show will greatly increase your chances of getting approved. Canada Mortgage and Housing Corporation (CMHC) limits lenders to consider only the last three years of income.
     
    The basic documents you need to provide for consideration are: income statement for your business, credit scores for yourself and your business, Business contracts which show proof of consistent income, Tax receipts which prove payments and proof of ownership for your business.
     
    It is more difficult to get a Self-Employed Mortgage because there is a greater burden of proof from the lender to show they can maintain the payments necessary for a loan. Detailed income statements, along with a strong credit rating and a significant down payment are considered necessary for these loans.