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RTO Question

dxg19

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Jun 4, 2008
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My Tenant buyer is ready to purchase the home, they gave me $5,000 initial deposit and have accumulated $3,000 monthly credits over one year.



My question is, what amount should I put on the agreement of purchase and sale. Is it $8,000, or should I put another amount? what would CMHC rather?



thanks



David
 

dxg19

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Thank you for your reply, I just noticed that is should have read what amount should I put down for the deposit in the agreement of purchase and sale. I will put the $8,000.



Is there a preferred lender anyone would suggest for rent to own, or are they all equal in that respect.



thanks
 

Thomas Beyer

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[quote user=dxg19]preferred lender


Since the $8000 has already been paid by the future owner some special wording is required in sales contract. Presumably the buyer gets a new loan with 5% down and as such most lenders woudl qualify .. but I recommend you send your tenant / buyer to a MORTGAGE BROKER and not a lender directly !
 
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lanedry77

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I agree - your Tenant/Buyer needs to get in touch with a good mortgage broker.



The way I've written the sale contract when a T/B excercises their option to buy is that $8,000 would be shown as an "Other Value" on the Alberta sales contract, instead of a deposit of any sort (since you don't want a situation where they don't close on the contract then ask for their deposit back!).



... so in short, don't refer to that $8,000 as a deposit. it's not, it's money they paid in exchange for an option to buy, and which you will credit them towards the purchase if/when they buy the house.





Thanks,



David.
 

RobMacdonald

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Be cautious about the LTO credits. I just was working with a client on the buyout, and Genworth ordered an appraisal of the property. The vendor was setting aside $500 per month from a total lease of $2450. The appraiser stated the economic rent was $2200, so Genworth would only accept $250 per month towards the credits.



Left us scrambling for other verification of downpayment.
 
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lanedry77

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Good point Rob.



I collect two payments each month. One is clearly rent, and the other is clearly option.



What would happen if the rent was actually below market, and the option was a larger number. Do you think the lender/insurer would modify the numbers (as above), or would the fact that its coming in as two seperate payments account for that?





Thanks,



David.
 

RobMacdonald

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Hi David,



I think the way you are collecting is the best way. It gives some grounds to raise the argument with the lender and insurer. If the economic rent is lower, then the lender would adjust the eligible credits accordingly. The buyer is still entitled to the credits and can use them towards the downpayment, but the lender will require some other means of verification. Either proof of other assets, or a gift letter.



The other option would be to use a lender that offers the flex down program and allows the buyer to borrow the downpayment. The buyer would have to have an arms length loan available, and there is a slightly higher insurance premium, but it is an option.
 
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