Creative Models For Home Acquisition and Mortgage Financing
“Creative Ways To Acquire a Home and Secure Mortgage Financing in Canada”
Before I get started with this post, I I’d first like to say that I neither recommend or condemn the following two approaches for home acquisition and mortgage financing listed below.
These are options in the market, and like any real estate and financing option, need to be assessed for relevance to an individuals situation and requirements.
Ok, so lets look at some alternative approachs.
The first approach is a “renter” model where a potential house purchaser who is not able to secure financing applies to a rent to own organization for assistance.
There are many variations of this model, but the one I’ve come across the most lately is where the buyer or renter identifies a home they would like to purchase, the renting company qualifies the house under their program and purchases it, giving a 5 year rental agreement back to the interested buyer.
The rental agreement fixes the rental rate for 5 years and includes a banking portion for a deposit so at the end of the 5 year period, the buyer/renter has the right to purchase the property from the renter at a predetermined price.
While this concept is not new by any stretch, the added twist of the new version is the pre-qualification of the buyer/renter at the beginning of the process so that they can be aligned with a home that they will be able to finance and afford in 5 years. The added benefit of some of these programs is credit counseling and credit repair assistance to increase the buyer/renter credit rating to a level that will support institutional financing in 5 years time.
The second home acquisition model I want to discuss is the builder model. In this model, a real estate intermediary works with a builder or group of builders to provide a cash back donation at the end of the building process when the property will be sold for occupation by the buyer.
Effectively, the builder is likely increasing the cost of the home by at least 5% and then offers the increase back to the buyer as a one time donation with no repayment requirements. This provides the cash down payment to secure an insured mortgage provided that the applicants credit and annual earnings support the mortgage requirements.
With the builder model, you may very well be limited to working with one builder and one house design, so this can be a bit restrictive, but will likely vary with each company marketing this type of program.
While both of these models on the surface appear to have some merit for certain individuals, an informed decision to participate or not will have a lot to do with getting into the details and making sure you understand all the related terms and conditions before signing up for anything. You may also want to consider getting legal advise if you’re unsure about the transaction or program requirements.
If you have any questions about mortgage options for these or other purchasing opportunities, give me a call and we will assess your home financing options.