As a Licensed Realtor actively trading in today’s Toronto Real Estate Market, I can safely attest that it’s no secret Real Estate became increasingly unaffordable for many over the past 18 months. With the consistently low inventory and relatively maintained demand, Toronto home prices lean towards leveling off at most over reducing at all in the near future. It is clearly a seller’s market; has been for some time now and no market indicators suggest that will change anytime soon either. Buyers are still aggressively in search for homes.
There have been so many changes in the Toronto Real Estate Market over the past 36 months that it created some uncertainty, especially with the new mortgage rules implemented in 2017 making it more difficult for buyers to get approved for a mortgage. Some buyers may have good credit but insufficient down payment. Others have down payment but poor credit history. Rent-to-own programs may provide a win-win for both and have increased in demand due to tightened mortgage guidelines.
For many people, a home will be the biggest purchase they ever make. Nevertheless, both buyers and sellers should carefully weigh their options before agreeing to any binding contract, especially existing Tenants considering how to tackle Toronto’s aggressive Real Estate Market right now. Let’s look at some advantages and disadvantages for buyers who opt to enter into a Rent-To-Own:
- Buyers may not have the down payment now, but will have it at the end of occupancy, as a result of the additional payments in the form of Occupancy Agreement Down Payment Saving Plan;
- If a buyer’s credit is not good, it can be improved over the course of occupancy through credit repair and/or credit counselling;
- If the market price of this home is more than the originally agreed upon future purchase price at the end of occupancy, buyer still get to buy it for the same agreed price.
- There is no guarantee that a bank will finance when time comes due to. Buyer must satisfy existing requirements which may include improved credit score, increased down payment or a strong co-signer
- If the buyer is just one day late on a month’s rent payment, most agreements void the rent credit for that month. The buyer in the rent-to-own agreement must pay on time, every time.
- If the seller fails to pay the original mortgage on the house, it may be foreclosed and the buyer forced to move.
For Buyers looking to invest in the GTA Market but cannot get approved for financing due to credit issues or low down payment, there is a solution. Buy now on a New Low Down Payment Rent-To-Own Program: HOME TO OWN (H2O).
Here’s how it works:
- Occupant signs all Realtor Agreements, completes application, Qualifies for HOME TO OWN (H2O) PROGRAM then pays all Set-Up Costs maxed a $1500.00
- Occupant chooses any Condo, Townhouse or House anywhere in GTA & Surrounding Area to purchase
- Investor (Owner) purchases home of Occupants choice through Realtor for Occupant then Occupants deposit is paid to the Investor upon the initial closing
- Owner and Occupant finalize details of Occupancy and Delayed Purchase Agreement then closes purchase of the property
- Occupant takes Occupancy and pays all expenses and Required Savings including Down Payment & Future Closing Costs on Future Purchase Price
(Present Purchase Price Increases Maximum 3% Annually)
- Occupant has 2-3 years to satisfy terms of Occupancy Agreement & Mortgage Approval then close on their home purchase from Owner to take Full Title
After conducting my own personal detailed research and due diligence on this program, I have underlined the following advantages and disadvantages for the consumer.
- Occupants build their OWN equity rather than risk being kicked out of the market and waste on rental charges
- Home Improvements increase home value along with benefits of inflation instead of simply spending on a rental property with the hopes of being reimbursed dollar-for-dollar by a Landlord
- Occupant can choose Any GTA Home, Condo or Townhome from $200K and up currently on the market to purchase and occupy that suits their sole requirements
- Occupant protected against surging home prices & sets future purchase price of their home TODAY with an upfront mutually agreed upon Annual Price Escalation of under 3%
- Investor/Owner financially strong enough to safely never default
- Occupant must show stable and strong income from minimum $50K+Annually from a single source or combined married couple only in order to qualify for program, which is base entry level income requirement.
- Minimum Down Payment of 4% must be readily available to secure Investor’s purchase, to be held in trust only until successful completion of occupancy and transfer of title to ownership. The Occupant’s deposit is released to the Investor when the Investor closes from the Original Seller.
- Occupant responsible for all carrying costs of purchased property along with Home Improvement, maintenance, repair and down payment savings expenses for entire duration of occupancy.
- Set Up Costs (capped at $1500 maximum including H.S.T.) must be paid immediately upon approval of program in order to commence program process which includes mandatory credit counselling that must be strictly followed in order to ensure successful completion of occupancy and transfer of title to ownership.
Although tenants feel that renting saves, due to price surges, without a program like HOME TO OWN (H2O), tenants may never be able to enter the market. Without NEW buyers entering our market, whatever will become of Toronto Real Estate? Unless the price surges stop and existing tenants save a complete down payment including closing costs and maintain good credit alongside stable income, they may never be able to buy their first home. Let’s consider all the following:
- Required Savings are credited to the Occupant and comes off the total amount owed, being typically $450-$850 per month. If an existing tenant must save towards their first purchase, there is clear benefit to doing this in conjunction with an Occupancy Agreement in a Rent-To-Own Program and working towards reducing the future amount owing on their mortgage to be credited on closing.
- As a result of very strong demand for ownership up against an extremely constrained supply of listings in 2017, the growth rate for the average selling price will be between 10 and 16 per for the majority of home types across the GTA but approved Occupant’s escalation is capped at 3% annually allowing any excess appreciation to remain for the Occupant’s benefit through HOME TO OWN PROGRAM (H20) only.
- Any Home Improvement costs (example: painting, decorating, landscaping or any other general improvements) improve future property value dynamically, typically yielding an increase in equity equivalent to cost times 4 or 5.
- Occupants build saving while enjoying all the pleasures and benefits of home ownership alongside maintaining control by securing themselves by never getting evicted by Landlords.
- The entire process is designed to be win-win! Win for the Occupant-buyer by ensuring only applicants with clear potential to close will be approved and strict follow up on credit repair instructions will be implemented. Win for the Investor who is guaranteed an annual return on their investment in a safe and secure investment model alongside helping a family accumulate wealth.
- Average existing monthly rental charges begin at $1500 per month minimum, which means $1500 monthly X 36 months = $54,000 minimum rent expense that will never be recovered is Tenant wealth lost and Landlord wealth secured.
A rent-to-own agreement allows potential buyers to move into their dream home while getting their finances in order to purchase the home several years in the future. It’s not without risks since they could end up losing money if they don’t (or cannot) buy the property when time comes due. For this reason, it’s vital for buyers to read and understand every word of the contract and know exactly what they’re getting into.
Bottom line is if you are serious about getting into home ownership, now is the best time to start looking into your options. If you can qualify for a mortgage, I would always recommend that avenue but if you cannot qualify, you really should find out what your options are with HOME TO OWN (H20). It doesn’t cost anything to have your questions answered and you may just find a new path to home ownership open for you when you thought there were none BUT the costs can be high if you choose to do nothing and continue down the same rental path.
In my professional opinion, HOME TO OWN (H2O) is the fairest, most transparent program on the market today and I would highly recommend it to all GTA Tenants over renting. For further information on this program or to apply, please feel free to contact Minee Nehru, Licensed Realtor with RE/Max West Realty Inc. directly at 416.282.2444.