High level summary or the basics of the program
Please note – the information below is the basics of the program. Each client is different and has different requirements. Monthly rent is based on house price, option payment, length of rental term and market conditions. If you would like further information about your specific case, please email us, using our contact us form.
- You’ve decided to become a homeowner in Airdrie or Calgary, Alberta but for some financial reason cannot purchase a house on your own at this point in time
- You and have an annual household income above $90,000 per year
- You are a qualified applicant by having between $10,000 and $17,000 in cash available to purchase an option on a house and to pay for a home inspection
- You should have a credit score greater than about 500 although this will depend on your circumstances
- Your application is accepted and a mortgage broker has identified that you will qualify for a mortgage within a one to three-year period
- You work with one of our realtors to find a home which meets your criteria and our basic requirements
- We purchase the home once all the conditions have been removed
- You become a tenant and move into the home
- You pay your rent on time for the duration of the lease. A portion of this rent is set aside for you and will eventually become part of your option money once you exercise your option to purchase the house
- You exercise your option to purchase the house
- You qualify for a mortgage through a mortgage broker
- The ownership of the house is transferred to you once all legal requirements are met and payments are made
- You now are the owner of your own home
Detailed summary of our 6 step program to home ownership
The steps that you will go through to purchase, what will ultimately become your property are as follows:
- Self qualification
To be approved you will need at least $14,000 to purchase an option (4% of a $350,000 house), $500 for a house inspection, a household income greater than $90,000, be comfortable paying a rent of at least $2,275 per month (this includes a $460 option credit) plus utilities and have a credit score of greater than 500, unless you are new to Canada and do not have a credit score. Unless you meet the minimum requirements, you cannot move forward with this program as the probability of you not qualifying for a mortgage at the end of the program is too great. In some cases, provided your income is high enough (greater than $100,000), I can design a program to fit your requirements.
When you cannot qualify for a mortgage you will end up losing a lot of money so it is in your best interest to remain a tenant for now. If you cannot move forward with this program, we do offer some suggestions on what you can do to increase your probability of eventually becoming a homeowner on our webpage about improving your credit score.
Please note: For people who have never owned their own home or have not owned a home for 4 years and have RRSP money, there is the potential for you to use that RRSP money towards the purchase of the property once you take ownership. This will reduce your monthly rent payment as the option credit discussed above may not be required.
- Pre-approval Application
Once you have self-qualified yourself, you will fill in our online application which can be found here and submit it to us. Once the online application has been initially approved, we will carry out a phone interview with you. We will then determine the approximate house price you can afford. Provided everything looks good at this stage and you are still interested in the program you will be given our detailed application, which will ultimately be used by the mortgage broker.
Together we will then sit down with our mortgage broker and determine how long it will take you to qualify for a mortgage. Provided everything looks good to you, we will then verify all of your financial information and call your references. Once everything is acceptable to us we will be ready to move forward.
- House Hunting
Once we have done everything possible to ensure that there is a high probability that you will qualify to purchase the home at the end of the option expiry date you will be introduced to our realtors. After meeting our realtors and deciding to move forward, you will be asked to place in trust with our lawyers the option fee which should be 4% of the expected house price plus $500 for a home inspection. At this stage, these fees are totally refundable minus any lawyer fees (typically $200) should you choose not to move forward.
Please note that you will have 2 weeks, from the time you meet our realtors, to the time your option fee and home inspection fees needs to be deposited with our lawyers. When you require more time than this, we will consider your interest in moving forward low and terminate the relationship.
You will work with the realtors to find a home in Airdrie or Calgary which you ultimately want to call your own. The typical house which we purchase costs between $325,000-$425,000 although the number of homes between $325,000 and $350,000 in Airdrie is limited. Also, to meet our requirements, other than price, in Calgary, expect to pay at least $350,000, more likely $375,000. These homes will have three or more bedrooms and two or more bathrooms. Preferably, it has a garage, yard and fence. A finished basement and driveway are preferred but not essential.
Typically, there are 20 to 60 houses in our desired price range. However, your desired price range will likely be narrower, say $350,000 to $400,000, which will reduce the number of homes available. Since we want you to keep your expenses as low as possible, we want to ensure that the house you are selecting is in good condition. We want to ensure that the furnace will last at least five years from the date of purchase and that the roof does not need to be replaced. The house should be move-in ready and not require a lot of maintenance. A house which is less than 10 years old is preferred. We do not buy homes which are more than 25 years old unless they are in great condition.
At this stage, the ball is in your court and you will work with the real estate agent until you find a property which you ultimately would like to call home. Once you have identified a house which you would be interested in living in, we will discuss the purchase price with the realtors to ensure it is fairly valued and do a basic house inspection. Provided the house meets our requirements and you agree to the purchase conditions we will put in an offer to purchase the house.
4a. Purchasing the home – Removing conditions phase
Generally, all of our offers will contain the following conditions:
- Acceptable financing – We will need to get our mortgage broker to secure our mortgage. This will include an appraisal of the property and an estimation of fair market rent.
- Home inspection – Since the ultimate aim is for the client to own the home, the client is responsible for paying for a home inspection, we will arrange this. Once the home has been inspected, both the client and our team need to accept the home inspection. In some cases, we will negotiate a lower price based on the home inspection.
- Lawyer review and acceptance – We will require our lawyer to review all documents and advise us to move forward.
Prior to taking the conditions off you will need to purchase the option contract and sign a lease to rent the property.
- Option contract – The client has purchased an option to purchase the house in the future at a predefined price. Depending on the market, we increase the price of the house by approximately 2 – 3% per year so closing on a $375,000 house will cost the client around $390,000 to $398,000 two years later when the option is exercised.
- Signed lease – The client will need to sign a 1 or 2 or 3 year lease for the property and provide 1st months rent
Once all of the conditions have been removed, we will move forward and purchase the home.
4b. Purchasing the home – After the removal of conditions
After the conditions are removed we will generally aim for 2 to 3 weeks to transfer ownership between the current owners and ourselves. During this time our mortgage broker will be working with the banks to get a mortgage in place for the property. We will typically align the mortgage length to coincide with the lease length.
During this time period, our lawyers will draft up all paperwork to complete the purchase. In almost all cases, we will aim to gain ownership approximately one week before your move-in date. We do this to be sure that we have possession of the house when you are ready to move in. This essentially guarantees that you will have a place to move into when you’re current lease is up. There have been reported issues where there is an issue during purchase and the possession date ultimately ends up being one week after the client’s current lease expires. This results in storage of all possessions and living in a hotel during that time period.
Prior to possession, you will arrange to have all of the utilities hooked up on possession day.
If you choose to move after possession day and prior to your move in date, there will be a charge of $50 per day. While there is slightly more expense with doing it this way, it makes moving in much simpler as you can do it over 1 week instead of one day.
Prior to move-in, we will walk through the house and issue you an inspection report. Pictures and videos will be taken during this walk-through so that we both have a good description of what the property looked like prior to the move in date. As soon as we have the keys, complete the walk-through and you have paid your first months rent, you will be allowed to move in on your move in date as by this time, all legal paperwork has been signed off.
You are now a tenant in a home in which you have an option to purchase in the future.
5b. The Rental and Down Payment Building Period
During this phase, which typically lasts 2-years, the client moves into the house as a tenant and pays monthly rent as per the lease. The client works with a credit counselor, when required, to improve their credit score. The landlord sets aside the amount specified in the option contract in a special account which will ultimately be used by the client as part of their option money. During this phase, your main job is to improve your credit score, reduce your debt and maintain the home in good working order.
5c. Improving Your Credit Score (When required)
When your credit score is slightly lower than that required to obtain a mortgage, typically 680+, you will be working with Money Mentors during your time as a tenant. We will pay for this service for you. All you need to do is attend a few sessions with Money Mentors and take the action required to improve your credit score. You will be participating in their program to improve your credit score. Alternately, depending on your situation, you may just need to work with our mortgage broker.
Every 3 – 4 months we will sit down with you in your potential future home and discuss what changes you are making to your lifestyle and how you are improving your credit score. Our mortgage broker will provide you with an app which you can use to track your credit score as well. We will look at the design that Money Mentors or mortgage broker has put forward and how you are doing. Provided you follow the financial pathway outlined to you, your credit score should be at or above 680 at the end of your rental term. With a credit score above 680 and 7% of the home’s purchase price available to you, once the option is exercised, a mortgage broker should have no issues obtaining a mortgage from one of the big banks for you.
6a. Exercising Your Option
Approximately 90 days prior to the expiration of your lease, we will sit down and determine your ability to exercise your option. Provided you have followed the plan laid out for you by Money Mentors or the mortgage broker everything should be lining up. Once you declare that you are moving forward, you will need to go and talk to a mortgage broker and get qualified for a mortgage. Depending on the lender the mortgage broker uses, you may or may not have to pay for an house appraisal. There is also a high probability that you will require mortgage insurance.
As long as the appraisal price is equal to or greater than the option’s exercise price we can move ahead. When the appraisal comes in greater than the option price you will have instant equity in your property. In all likely hood, the closing date will align with the end of your our mortgage whichever comes first. Our lawyers will work with your lawyers to complete the transaction. Once the option is exercised, 5% of the house price will be kept by us, as the down payment and the remaining amount will be put in trust with our lawyer. The lawyers will use some of this money to cover all closing costs for you. Any excess cash will be returned to you.
Prior to closing, you will be required to get insurance for the house and the city will need to be notified in regards to tax payments. Since you already live there, all of the utilities will already be in your name so there will not be any work required in this area.
On closing day, you will be handed all keys to your new home and you will be the proud owners of a new home. Congratulations.
Appraisals are not an exact science and there is always a probability, especially in a slow market, that the home will be appraised at less than the option price. In this case, the bank will only give you a mortgage for 95% of the appraised value. If this occurs, there are a number of options we can consider:
- You can write a check for the difference
- We can extend the option and lease for another year
- You can get a second lender to have the home appraised
- We can negotiate a lower selling price
- You can walk away from the deal
Walking away from the deal can be very expensive as you could loose most of your monthly option credits and will loose all of the money you spent to purchase the option. If you decide to take this route, we have outlined 3 examples of how this could turn out here.
6b. Enjoying Your New Home
The home now belongs totally to you and you will be responsible for all aspects of home ownership from here on in. At this stage, you should be feeling pretty good as you’ve come a long ways during this process. With an improved credit score and a mortgage of your own now, you should be able to purchase another house in the future if you so desire.
Smoking and Pets
During the life of your tenancy, all of our homes are smoke-free. Therefore, there is no smoking allowed in the homes while you are a tenant.
With approval, we do allow small dogs and other small pets. Cats are not allowed. We will require a $500 damage deposit for all pets.
Now that you are familiar with our process you can proceed to our online application.