馃攳
RENT-TO-OWN Canada / How Does It Work / Pros & Cons / Rent-To-Own For Bad Credit & Good Credit - YouTube
Channel: MONEY with MARK ALBERT
[0]
Hi it's Mark Albert, today we're gonna
look at the rent the own program that's
[5]
available in the mortgage market. What is
it? Well really it's a program in which
[12]
you partner with another organization
who has an investor. You pick a house and
[18]
if you qualify the investor buys the
house, you rent off that investor for a
[25]
period of time and then eventually you
buy it back off that investor once
[30]
you're able to at the end of a contract.
We're gonna look at the details of that.
[34]
We're gonna see kind of what it
looks like if you have bruised credit and you
[40]
want to get involved in this. What about
if you have good credit? We're also gonna
[45]
look at the pros and cons. Okay? And then
that's what we're gonna do on there so
[48]
you have a good understanding of this
program. So let's get into it.
[53]
For bruised credit - so basically to get
involved in the program
[59]
the investor buys the house that you
pick, but you have to put 5% down and 1%
[66]
fee. Now this is someone with bruised
credit, they bad credit they wouldn't
[69]
be able to get a mortgage otherwise. Okay? Then they're gonna rent off that
[75]
investor anywhere between three to five
years. Probably on the five-year side of
[81]
things if they have bruised credit. At the end
of five years they're gonna buy it back
[86]
from them and so what happens is you
must buy it back.
[89]
So there's consequences if you don't.
You're gonna be in a contract and that's why
[96]
this particular one, this contract, you
need to have a lawyer read it and give
[102]
you advice
legally whether you should or shouldn't
[105]
because there's a certain level of
risk involved in this program. So you
[112]
need to have a lot of money.
So basically the minimum is four times
[116]
the income to value to the home value.
And that just means the math is if you
[121]
make 100,000 dollars times
four it's 400,000. So you
[126]
can get a house on the minimum side of
400,000 in this program
[131]
if you make like your household
income is 100,000. So if one
[136]
spouse makes 70,000 and the other
spouse makes 50,000 that's 120,000.
[141]
So then they'd qualify for higher amount
around 480,000. So that's bruised
[148]
credit one of the damages, one of the
concerns I have, with someone with bruised
[154]
credit getting in this program is you
are going to rent off of the person who
[160]
bought this at a very high rent price.
And part of that rent goes into the down
[169]
payment that you're gonna eventually you have
to do. But because your rent payments are
[173]
so high the person with bruised credit usually
there are patterns that people
[178]
develop so they eventually have bad
credit. And if your rent payments are so
[183]
high and you're not able to really fix
the bad credit issues by the time five
[190]
years at the end of the contract is up
and you have to buy that house if your
[193]
credit still is not good enough to
qualify under the stress test, either an
[199]
A or B lender, then you're in big trouble. So
let's look at if you have good credit. If
[205]
you have good credit maybe 3% down or
10,000 whichever one is greater
[209]
just to get in the program. You're pretty
much looking at a three-year program
[215]
there because all they want to do is
rent there for a time all you wanna do
[219]
is rent it for a time and then you
buy it out. Just give me enough time to
[223]
buy it out. After three years you must
buy the house. So the same thing on the
[231]
income. So on the pro side. Now before I
get into a pros and cons, let me share a
[238]
little bit about myself. I think when you
approach an intersection and you're
[242]
driving the car you get a green light or
an amber light which is like yellow or a
[248]
red light.
Well green means most of us think it
[252]
means go but it doesn't. According to the
Highway Traffic Act green means proceed
[257]
with caution. Amber it means stop unless it's unsafe to do so. Right?
[265]
So you pick your point of no return. And red light means stop.
[270]
And so when I look at the pros and cons of this
[272]
I'm more of a red light kind of guy in
terms of my attitude towards his program.
[278]
I'm more of a red light versus a green
light. I'm more of a red light versus an
[285]
amber light. So I could be amber depends
on the situation
[289]
but it's a bit of a high risk and that's
how I see it. I think there's better ways
[292]
to get a house. So the pro side your
future purchase price that can be known
[302]
in advance. Which is good you want to
know that. It becomes a big problem is if
[306]
the next four years five years the
market kind of plateaus off then it's a
[312]
it becomes a really big issue. Initial
fees may be used towards your down
[320]
payment which is a positive, right? So if
you've got to put 3% down or 5% down you
[328]
want to make sure that in your contract
it's very clearly written that that
[333]
money is used for your down payment. And
it should be if you work with a proper
[337]
company for this. So some of your rent
will go towards the down payment. So I'll
[345]
give an example. So let's say if you have
to pay an elevated rent of 3,000 a month.
[351]
Maybe as high as 600 or 700 a
month of that money may go to the future
[360]
down payment. Maybe. So there's a
percentage that goes towards that and
[364]
you want to know what those percentages
are in your process of understanding the
[369]
contract. And you want to know that that
money is actually going towards the down
[373]
payment and that should help you in that
process if your contract is like that.
[379]
Should be able to select a home, so you
picked a home, you get approved by the
[384]
investor, the investor buys a home and
then you eventually buy the home off the
[388]
investor and this is all done through
contracts.
[393]
High income earners without down payment,
this is a good program they can work so
[400]
someone who lives downtown Toronto and
houses a lot more expensive they make
[405]
tons of money but just don't have a down
payment, this could potentially be a good
[409]
solution for someone like that. So on the
negative side of the rent to own program. If
[417]
you can't buy at the end of your lease
contract you're in big trouble.
[422]
Potentially lose all the money that you
put as fees, all down payment money, gone.
[428]
And nowhere to live because you're out
of the contract you no longer can live
[433]
there. So it could be very high-risk
because what happens if you lose your
[437]
job just at the end of your the contract
when you have to put a mortgage and you
[442]
have to get it? You lose your job then
then you can't get a mortgage. Or your
[448]
credits that's not good enough or due to
the stress test
[452]
you just can't qualify. The initial fees
cannot go towards your down payment. If
[459]
that's the case then that's a problem.
You don't want that. High rent. Probably
[464]
higher than the market value. So when you
look at it the next one here is you do
[471]
the math it might be a bad business
decision. So if you look at the amount of
[476]
rent you have to pay and if the rent is
way up here but this much goes towards
[481]
the down payment well why don't you just
get a very cheap inexpensive place to
[487]
rent for three years. All that extra
money would have spent in this program you
[491]
put into a separate bank account.
And then when the time is right you're
[497]
just buying off. A lot less risk. That
might be better, but it's good to you got
[501]
to now analyze those things to see if
it's if it's if it's a good or bad
[504]
business decision. If you break the
contract you might lose your deposit.
[511]
Who holds the money? So is it the landlord
who holds the money that you keep giving
[516]
that's supposed to go for the down payment?
Or is it put in a separate trust set
[521]
aside for that purpose? So if it goes to a
landlord is there a potential risk that
[526]
that money may not be available to me or
whatnot. Okay? The stress test challenge
[533]
you can't buy at the end, that could
happen. Of course at the end of a three
[538]
or five-year contract, who knows what the
mortgage rules are going to be. Who knows
[542]
what your circumstances are going to be.
So hopefully this is helpful for you. I've had
[547]
a number of people over the last several
years I asked me about this program. So I
[551]
keep explaining it so I thought it'd be good
to do a video so everybody could have access to it.
[554]
Listen really appreciate you being with
me today. Please subscribe, click the bell
[559]
for notifications and I look forward
talking again soon. Have a wonderful day.
[563]
Bye now.
Most Recent Videos:
You can go back to the homepage right here: Homepage