Rent-to-Own Horror Stories

What can go wrong when a Rent to Own agreement is signed without the advice of a lawyer?

Quite a lot. Here at Alberta Mortgage Source we hear new horror stories daily from dissapointed home buyers who have already entered into a faulty Rent-to-own contract. And we can tell you that 95% of all Rent-to-own agreements we see are set up incorrectly - this is no minor thing, if a contract is written up incorrectly CMHC and the mortgage lender will not accept your rental savings for down payment! Here are a few more examples of contracts gone wrong:

The Disappearing Down Payment Disaster

Our client's were renting a property with aspirations to own their home within two years. They had no down payment saved but their landlord offered them a solution: Rent-to-own. A contract was signed and the landlord allocated a portion of the rent towards the 5% down payment.

Two years later and it's time to exercise the option to buy the home. However, during the mortgage approval a startling fact was discovered, the appraised value of the home was lower then the total mortgages outstanding on the property. The landlord didn't have financial means clear the mortgages from title so our clients had the legal right to cancel the rent-to-own contract and receive a full refund of their saved down payment.

There was just one problem, the landlord didn't save their down payment in a seperate trust account or any account for that matter. As he received the funds, the landlord simply spent the money as his own. Their down payment was gone and in the end their only option was to sue for the return of their down payment. .

The Cash Grab

The most common of all Rent-to-own horror stories is the cash grab. This is how it works: Advertisements are placed offering home ownership solutions to individuals with bruised credit, bankruptcy, etc. Their product is a Rent-to-own, but here's the problem - the individual with poor credit must still qualify for a traditional mortgage at the end of the rent-to-own term. And a one, two, three or even four year timeline may not be enough time to repair one's credit.

The length of time it takes to repair credit varies widely from person to person and their specific situation. Some Rent-to-own ads will offer credit repair steps or advice, stating "we'll get you on track to buy a home", but these individuals are not licensed mortgage brokers and have no clue what CMHC and the banks will require for credit.

In the end, the vast majority of Rent-to-own deals with poor credit do not qualify for the mortgage at the end of the contract. They cannot take possesion of the home and exercise their option to buy and as such, their cash deposit, and sometimes their down entire payment, is forefited to the landlord. On purpose or accident this Rent-to-own only benefits the landlord.

The Inflated Purchase Price

With many Rent to own deals the final purchase price of the home is left - up in the air. One would assume the appraised value of the home would be a good starting point. However, since these option contracts are being drawn up without the guidance of a lawyer it's not uncommon to find the buyer and landlord agreed to an inlfated price back when the contract was signed.

So when it comes time to buy the home and obtain a mortgage, the banks and CMHC will require an appraisal. We had one client had a agree to a price of $400,000 a year prior but at the time of mortgage application the appraised value of the home came out to only $300,000. There's is zero chance any bank will provide a mortgage for the higher amount, so the client's only option was to come up with $100,000 cash to cover the shortfall. He was unable to do this. In this situation not only did he loose his initial $5000 deposit but landlord also kept $15,000 of the down payment he had saved. He walked away from this home and was unable to obtain any of his money back because he had a signed contract. A lawyer may cost $2000, but in this situation that would have saved him $20,000.

Rent-to-own providers are not Mortgage Brokers; they are not Realtors, and they are certainly not Lawyers.

Never rely soley on the advice of any homeowners or businesses offering Rent-to-own.

If you have no down payment we have mortgage alternatives that are less risky and more affordable.

Contact us today to find out what your options are!

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Alberta Real Estate

Alberta home prices have slowed their upward momentum over the last year. This is great news for homebuyers looking to purchase and Edmonton and Calgary have officially moved into a 'buyers market'.

Residential listing activity on the Edmonton Multiple Listing Service® (MLS®) increased 7.3% and overall sales increased 24% in 2014. As such the average selling price for a single family dwelling in Edmonton jumped 6.30% while condominiums increased 3.20%.

We are the local experts in no down payment mortgages for Alberta. Contact us today at 587-400-9699.

Alberta Mortgage Source

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Edmonton, AB T6H 2L1
P: 587.400.9699 | Message Us | Contact Calgary

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