When you don’t qualify for a mortgage your dreams of owning a home are over. But are they? There’s a newer solution for Canadians that can help. You can rent-to-own a house in Montreal when you don’t qualify for a mortgage.
With Montreal real estate prices going through the roof, some people’s only chance is to try this approach. But, you’ll have to be extra careful.
When is Rent-to-Own a House in Montreal an Option
Rent-to-own a home is something to consider if you:
- Don’t have the down payment amount available
- Have poor credit
- Are self-employed
- Currently don’t make enough money to qualify for a mortgage loan
Right now, the way things stand, buying a home is kind of difficult. There are tighter housing rules and rising interest rates to deal with. So, in these cases, rent-to-own in Montreal might be a buyer’s best bet and make a good alternative.
How Does it Work?
It’s relatively simple, yet there are complicated details (below). You:
- Rent a home (one that you want), with a goal to purchase it once the lease ends.
- Are expected to pay the amount agreed upon for the rent.
- Will have to make payments in addition to the rent, regularly, which will be put toward your future down payment. Obviously, the rent is higher than market rates.
What Happens If You Don’t Buy the House?
There are different agreements that lead to the tenant having the option to buy the property, but not buying it results in a breach of contract.
More often than not, tenants pay a fee of about 2% – 4% of the purchase price. So, if the house costs $400,000, and you’re charged the maximum fee of 4%, then the buyer would have to pay $16,000 up front. At 2%, that would equal $8,000.
The fee is often used as part of the future down payment the tenant will make, or it’s an amount that’s discounted from the sale price of the home.
Putting up some money shows the landlord that you are serious and motivated to buy the house.
If you fail to purchase the property, for whatever reason (even if you don’t end up qualifying for the mortgage loan), you lose the money.
Although this does sound like a great solution and a solid opportunity to own a home, you must go into this transaction with care. Read the fine print, calculate the numbers, and so on.
See a lawyer or a notary to ensure the paperwork is on the up and up.
So, After Rent-to-Own Lease Ends, Do You Get the Mortgage?
No, there are no guarantees. While you may think that you’ll qualify for the mortgage loan without a doubt, think again. In fact, this is the biggest problem and risk associated with rent-to-own.
If you don’t end up getting the loan approval, you’ll likely lose the home, and most of the money you put toward it. Lately, consumers are having a harder time getting a mortgage.
Also very important: some mortgage lenders refuse to work with landlords who don’t give the tenants part of their refund back if they don’t end up buying the property. So, make sure your agreement follows the guidelines. You, as the buyer, stand to lose more than the landlord.
Sometimes, however, you might end up qualifying for the loan, whether you go the traditional route with a bank or through a mortgage broker, but the terms may be different from what you expected. For instance, the interest rates may increase, causing your loan payment to be way more than what you can afford to pay.
As a tenant-homebuyer, and again your best bet would be to get legal advice from a lawyer with regards to the rent-to-own in Montreal (or anywhere) option. You may have to cough up the money for good advice, but it will be well worth it in the end.
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