It’s important to know the numbers in any situation. Whether it’s your salary, banking fees, or your home. In this case, we will discuss the numbers for the rent to own home process. To qualify for the Rent To Own (RTO), a yearly salary of $60-70K is required. The reason for this is to allow the renter/owner to be able to afford the mortgage payments after the RTO term is complete. It will also allow for a cushion in case interest rates go up and mortgage payments increase once the mortgage is approved.
I will go through an example of someone going through the Rent to own process
Income of $70K and pre-approval of home of $270K, will allow for a nice, comfortable home in the Durham Region – Pickering, Ajax, Whitby or Oshawa.
House Budget $270,000
Option Deposit $8000
Rent $1700-1900 per month
$200 Rent Credits
This shows that the house budget is $270,000 and option deposit from tenant/buyer is $8000, their rent would range from $1700 – 1900 per month. There will be $200 set aside from the monthly rent to be saved to go towards the future down payment. At the end of the term, (3 year term) from the credits, an additional $7200 would be saved to put on the down payment of the house. So a total of $15,200 ($8000 option deposit + $7200 rent credits). The down payment for the house is a 5.6% down payment.
Since in the beginning, you are unable to secure a mortgage by yourself with a bank, there are investors that help with this. The investor would help with the purchasing of the house for the first 3 years of the term (if you pick a 3 year term) The investor basically will be approved by the bank, get a mortgage for the home, while you live in it and reap the benefits of the home ownership.
The investor pays
The investor takes care of plenty of the monthly payments for the house that you would not have to worry about. It is basically all included in the rent!
Fixes under $500
As a Rent to own home owner, your responsibilities lie within the home and what is required to have the home running smoothly. In this case, it would be the rent (which the investor would use for the mortgage), utilities and insurance (no home should be without insurance, it is your home, and you would want to protect it from danger) Also, fixes under $500 would be the renter’s responsibility, just like home ownership. But the benefit is fixes over $500, the investor takes care of. Roof, water heater etc, things that are high priced, the tenant doesn’t have to worry about. Just like renting!
Credit Check per person ($25)
House Inspection ($500)
Realtor Search ($1000)
A couple last payments to be made from the renter would be a credit check that costs roughly $25. The credit check only allows the company to see where your credit is at the moment, and how much help is needed to make it stronger at the end of the term. The house inspection, which is important in any home ownership, is paid by the tenant. The House inspection allows you to know if the house is a good house to own, or if the house is a fixer-upper. Property that would require tens of thousands of dollars to fix, similar to a house flip. The Realtor search is fortunately part of the option deposit, so it will not be an extra $1000 from your pockets but from the already made deposit.
All the money that is required for a Rent To Own program will be worth it in the very end. Your own home. Talk soon!