Three times in the last week I have received telephone calls from people looking for a document that I have not seen used for several years. They are asking for a “Rent to Own Agreement” which, in legal terms, is referred to as an “Agreement for Sale”.
This document is used where a Buyer has no down payment or cannot qualify for a new mortgage on his or her own. What happens is that the Buyer pays a monthly payment to the Seller and agrees to rent the house for some period of time. During the rental term a portion of each monthly payment is applied to a deposit. At any time during the rental term the Buyer can elect to apply the deposits that have accrued monthly, obtain a new mortgage and close the purchase of the property.
Effectively, the Seller collects the Buyer’s extra monthly payments and puts them into a “savings account” which the Buyer can use at any time during the term of the rental. The Buyer has a place to reside, the price for the property is agreed upon in advance and the Buyer’s only issue will be his or her obtaining a mortgage approval from a lender at some point during the term of the rental.
Why so much interest in this type of an agreement after so many years? I presume that it has something to do with the governments’ tightening of the mortgage qualification rules. If that is the case, Buyers need to have a larger deposit and they can obtain that deposit while living in the property by use of an Agreement for Sale.
I have many cautions to express for those interested in this type of an Agreement. Give me a call…