Rent to Own Homes – A Typical Deal Example
Let’s assume the classic tenant case. He has been living off rent for all his life due to convenience and other budget considerations. In his mid 30’s he has probably lost thousands of dollars in rent. But he now has a good income and a stable job. But over the years, he hasn’t been able to build a good credit rating. Average credit rating of such tenants is in the mid 500’s or below average. But now, he wants to live in his own dream home.
Below average credit score means that most of the banks and traditional lenders have rejected his mortgage application. For example, most people hunting for Mississauga homes for sale usually end up being rejected by banks due to tarnished credit rating. This is where rent to own homes programs kick in.
Tenant’s Maximum Monthly Payment = (Monthly Income/3) – Property Taxes – Misc. Charges
For Example, if you monthly income is $7,000 then as per the formula,
Your yearly income is $84,000.00 and should qualify a house worth around $350,000 – $420,000.00, depending on your other debt obligations. Every situation is unique and must be properly calculated and assessed by the mortgage broker. To simplify here is a typical example:-
Max monthly Payment – ( $7,000 / 3 ) – $100 Misc Charges – $300 property tax = $ 1933/ Month
This means that you can afford net rent $1,933.00 per month house.
Total Debt Service Ratio (TDS) – This is the payment you can afford to support your payments for your dream home. Banks and leading financial institutions consider around 40% TDS for credibility and approval.
TDS = Monthly Total Debt / Gross Monthly Income
Assuming your monthly expenses = $1,933.00 (House Rent) +$400 (Property Tax and Ins.) + $650 Monthly Expenses = $2,983.00
Now, TDS = $2,883.00 / $7,000 = 42.61%
Since, tenant’s TDS comes over 40%, most banks would simply reject the home loan application.
Now, after being rejected by the banks, we suggest you try a rent to own homes program. Most of the below 40% TDS cases achieve success with our rent to own home program. In most probability, if your chosen home has a rent in close proximity to $2100, you can dream of owning the home. Add the advantage of generous rent credit and the tenant will have enough at the end of 2-3 years lease period for mortgage closing.
- Rent to own Recreational Land in Ontario
- Rent to Own Residential Land in Ontario
- Rent to Own Commercial Buildings in Ontario
- Rent to Own Mixed Use Rental Properties in Ontario
- Rent to own homes Toronto
- Rent to own homes Mississauga
- Rent to own homes Brampton
Now, no more money goes down the rent drain. Tenant is actually putting equity in the home they plan on buying some point in the future. Rent to own program is like the much needed lifeline for tenants with bruised credit score.