Thousands of hardworking men and women are sitting on the sidelines of the Canadian housing market, frozen out by rising interest rates and severely restrictive mortgage guidelines. For many of these individuals, rent-to-own poses one of the few viable paths to homeownership.
Despite the overwhelming benefits of rent-to-own – high returns for investors, a home where tenants can watch their families grow – investors and tenant buyers alike can often have their plans derailed by choosing to partner with the wrong rent-to-own company.
The team behind Homeowners Now, one of Canada’s most successful rent-to-own operators, realizes that the success of a rent-to-own arrangement often boils down to one facet: the tenant buyer.
If a tenant buyer is not in a position to qualify for a mortgage at the end of their three-year lease, the deal they are involved in will collapse. True, the investor involved in the deal can receive the tenant’s deposit and the incremental mortgage principal that has been paid down, but they will also be stuck with a house they had no intention of keeping. It is critical, therefore, for a rent-to-own company to thoroughly vet its applicants, choose only the most qualified, and then work alongside those individuals to ensure they will be in a position to purchase at the end of the lease period.
Homeowners Now is one of the few rent-to-own companies in Canada with the resources to execute such a necessary and extensive process.
The best of the best
Finding the right tenant buyers has been one of Homeowners Now’s calling cards, and a major part of the company’s 100% success rate. As part of Homeowners Now’s 29-point screening process, not only are tenants required to supply the pertinent tax, employment, and credit documents, they are also taken through a lengthy interview process to determine their goals, their disposition and their forthrightness.
“We request a lot of their qualitative information in addition to their quantitative information,” says Homeowners Now co-founder Dale Monette. “What interests them about rent-to-own particularly? What’s holding them back from getting a mortgage? We also find out if they have any other sources of income, which could potentially help them in purchasing their home, and identify any ‘hidden’ liabilities that may preclude them from successfully qualifying for a mortgage at the end of the program.” Monette says average Homeowners Now tenant buyers have a household income of $111,000 and provide an initial deposit of $16,000.
Of the 300 applications Homeowners Now receives every month, fewer than 3% of tenant buyers are approved, ensuring the company works with only the most promising applicants.
The Homeowners Now Program
Once applicants have been approved, they are required to participate in the Homeowners Now Program. Every 90 days, tenant buyers are contacted by a member of the Homeowners Now team to chart their progress toward homeownership. Credit profiles are carefully tracked and charted, allowing tenants to visualize their progress and understand what additional measures they need to take in order to qualify for financing.
The Homeowners Now Program includes:
According to a 2015 report issued by BMO, more than half of Canadians have never checked their credit bureau report. 31% don’t know how to achieve a good credit rating.
“People don’t teach you how your credit score impacts your ability to get a mortgage, unless you hire your own credit coach,” Monette says. Homeowners Now provides access to a suite of credit coaches as part of the process. “Our credit coaches understand Equifax and TransUnion’s rules for deriving their credit scores, so they know what people should do to improve those scores.”
At the end of the three-year lease period, tenants will need to qualify for a mortgage of their own. With mortgage rules constantly changing, it can be difficult for Canadians new to the process to know what they can do to improve their chances of receiving financing.
“Our mortgage specialists make sure our tenant buyers understand the relationship between taxes, commission income, employment letters and getting financing,” says Monette. “It’s mostly a program of tweaks, but it’s been proven to help our tenants in their ability to get a mortgage.”
Homeowners Now will not move forward with a client unless they are convinced the client will be able to qualify for the mortgage by the end of the Program. Unfortunately, Monette says, this is not the case for most rent-to-own companies and is something all investors should be cognizant of.
Self-employed individuals often work with accountants who encourage them to claim as little income as they legally can, or to maximize their expenses, to pay the least amount of tax possible. While this is beneficial from a financial standpoint, a lower reported income can harm an applicant’s chances of receiving a mortgage.
“We work with these self-employed individuals and advise them what their income levels should be in order to qualify for the mortgage they’re looking for,” Monette says. “We track if their business is growing or shrinking and we help ensure that they’re not using too much of their own credit to float their businesses. All of this will help them qualify for a mortgage better than if they’re minimizing their income and financing their businesses themselves.”
By focusing on the unique needs of their tenant buyers, Homeowners Now has been able to solidify the rent-to-own process, creating the returns and reliability investors are looking for.
For more information on Homeowners Now, on the opportunity to make up to 12% on your next investment or on how you can help Canadian families realize their dream of homeownership, visit https://www.homeowners-now.com/