With the changes to mortgage approval rules, it is harder than ever to be approved for a mortgage. This is a problem for both Buyers and Sellers. Buyer’s cannot afford to buy, and that means Seller’s have fewer opportunities to sell their homes.
Many people wonder if a Rent-to-Own (also known as a Lease Option) is as good solution. Either a Buyer or Seller may suggest it if a potential sale is about to fall through because a mortgage cannot be approved or because a Buyer does not have a large enough down payment.
A Rent-to-Own Agreement has a number of potential pitfalls for both Buyers and Sellers.
- You are unable to sell the home to another interested Buyer for the duration of the Agreement
- You essentially are a Landlord for the duration of the Agreement
- There is a risk the Buyer will not qualify for a mortgage after the term of the Rent-to-Own is up
- There is a risk that a bank will not consider the equity you build up as part of your down payment
- There is a risk that you may lose any deposit you put down if you do not qualify for a mortgage
- You are renting a property instead of owning it
- Rent-to-Owns can be successful, and may, in some circumstances, be a good idea for a Buyer and a Seller, but you need a strong contract, and good legal advice before entering into the agreement.
Book a consultation with Law on Demand today to get the advice you need before you enter into a Rent-to-Own agreement.