Are Rent-to-Own Homes a Scam? | Canadian Mortgages Inc.
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Are Rent-to-Own Homes a Scam?

Rent-to-own homes, homes that you move into and pay rent for a little while before buying the property outright as your own, are becoming extremely popular in an economy in which mortgages are just too hard to get on your own. This is actually what makes them especially attractive options for people with low or bad credit because you don’t need to have mortgage financing in place. But some rent-to-own leasers have found problems with this type of arrangement. Either the initial owner doesn’t pay the mortgage while they’re paying the rent, or when it’s time to buy, the owner no longer wants to sell. So how can you tell if rent-to-own homes are a good buy, or a bad purchasing decision?
First, don’t ever assume that any rent-to-own home is one or the other. This is simply not an area in which blanket statements can be used. When considering going into a rent-to-own arrangement, you must first do your research – no matter what the purchase option, no matter who the original homeowners are, and no matter how much you love the home. The first thing you must do is make sure that the owner provides you with a title showing that they have full and total authority to the property, and to sell it to you. Additional paperwork that you must make sure you see is the mortgage paperwork – and you must see it every single month that you live in the home! It’s imperative that the owner gives you this documentation so that you can be sure that the mortgage is getting paid and that you won’t be forced to leave your home, and that it will still be there when it comes time for you to own it.
One of the main areas where rent-to-own purchase contracts can become sticky is with the “Option to Purchase” clause. If you sign this clause and you cannot follow through on the purchase when the time comes, you will be heavily penalized and may even be forced to enter into a mortgage agreement that you simply cannot afford. Then you could end up losing your home anyway, and you could ruin your credit pretty severely, making it extremely hard to purchase another home, outright or with a lease option, again in the future. It’s also always a good idea to make sure that you can extend the option six months or longer, in case you’re not in the position to take on a mortgage when the option is presented.
Rent-to-own homes are a great option for those who want to own a home but simply can’t afford the mortgage. Some of them are scams, but a lot of them are not and actually present a very viable alternative to home ownership. But with as much research that’s required when buying a home outright you can expect to double, if not triple, that amount of research when looking into a rent-to-own option. This is the only way to make sure that you can pay your rent now – and that you’ll have a mortgage to pay in the future.

Comments(4)

  1. The rent to own tenant definitely needs to do their research and make sure the program is a right fit for them. Understand all the numbers and where your money goes and read over all the paperwork.

    • Bryan J. says:

      Hi Tim, thanks for your post! I completely agree with you that the trend in R.T.O. homes is such that there are continually new entrants into the field, and our experience is that many of them of a lot to learn! Just like anything else, as a potential rent-to-own home-buyer you need to really scrutinize the options available within the marketplace before making your final decision.

  2. Pat W says:

    I am an owner in which a tenant who rents from me now wishes to rent to own as it was discussed when they moved in the possibilty of purchase in a year. Do you find these contracts work for both parties and where is the best place to set one up?

  3. Rent to own is not a scam, but you do have to be careful.

    Make sure you go with somebody in your city and definitely look for somebody reputable because you don’t want to waste your time and money.

    This infographic is quite useful to understand how the program works: http://loanscanada.ca/infographics/rent-to-own/

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