Interested in a Rural Property?

Buying a home in the country is a dream for many, but there are a few important points to keep in mind before you dive right in!

Here are a few things you should know:

1. Check The Zoning: When it comes to buying rural property, it is important to check how the property is zoned. This is vital as zoning will determine how you are able to use the land, as well as what types of buildings are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”? Depending on the zoning, it could affect the lenders available to you and what you qualify for.

2. Property Boundaries: Once you have determined how a property is zoned, it is important to look at the land. You may want to acquire a survey early in the process if the boundaries are not clear. Knowing the exact boundaries of your potential property will help to avoid future disputes and help you make an informed decision as to whether the land meets your needs or not.

3. Considering the Land and Your Mortgage: What many people don’t realize is that land has an effect on qualifying for a mortgage and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have several outbuildings or extra land that is being purchased, you may need to consider additional funding on top of your typical 5% down payment. This doesn’t mean that you cannot obtain a mortgage for a property with more than 10 acres, we absolutely have access to lenders that will allow this! It is always a good idea to send the property information to your Mortgage Agent in order to verify that the property will work within your approval limit.

4. Water and Sewage: When it comes to rural living, many people draw water from private wells and utilize septic tanks
   for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city, but it is important as lenders may request potability and flow tests.

5. Coverage Matters! When it comes to rural properties, you will want to obtain Title Insurance in addition to your home insurance policy. In fact, most lenders now require Title Insurance. Title insurance protects the title of your new property from fraud and possible deficiencies, such as unregistered utility easements. 

If your dream is to purchase a home in the country, I would be happy to help you determine your options! My goal is to ensure that you understand any differences in the mortgage process and overall qualifying that come with rural purchases.

I also know several realtors who specialize in rural properties…let us help you purchase your country home!

RENT-TO-OWN: Ensuring your Success

Rent to Own’s can be tricky to complete in the lending space, however; if set up properly this type of contract can lead you down the path towards home ownership.

A rent-to-own contract is essentially a purchase contract with an extended period of time between the acceptance of the contract and the closing date. It is important that the Buyer and Seller each have their own representation…lenders will not allow a Solicitor to represent both the Buyer and the Seller.

As a first step, I would advise contacting a Mortgage Professional prior to entering into a rent-to-own contract. Even though you may not qualify for a mortgage right now (thus the reason for the rent-to-own), you can be given valuable advice and a road map to ensure your success and the completion of the contract at the end of the term.

There are several very important aspects to consider in a Rent-to-Own scenario:

Setting the Purchase Price and Completing the Contract (Offer to Purchase)

In order to determine the purchase price, there must be an appraisal completed up front and kept on file. This appraisal will also need to include market rents for that property. The market rents will determine what you will pay as rent for the property and any amount over and above that will be put in trust towards the purchase (we will discuss this further below).

The contract will need to have an end date agreed upon by both the Seller and the Buyer (1-3 years is typical). For contracts longer than 3 years, it would be advisable to register the rent-to-own as a lease on the title of the property. This can be discussed with your Solicitor in greater detail.

It is very important that the contract states clearly that if the buyer is unable to complete the transaction (i.e., cannot get approved for a mortgage at the end of the contract), then the deposit and funds received over and above market rent are to be refunded (or partially refunded, at the very least). Often, this is left out of many contracts and is one of the reasons that Buyers will see a decline from their lender when it comes time to obtain the mortgage. Any equity built in the property during the Rent to Own period will belong to the Buyers, and it is a good idea to stipulate that point in the contract as well. If an adjustment to the purchase price is agreed upon at the end of the contract, then the Solicitors representing the Buyer and Seller will execute an amendment to the original contract.

The contract must state the rental amount PLUS the amount being paid in addition to that (if any). This needs to be clearly stated and broken out as rent and equity being built – which will ultimately add to the Buyer’s down payment. There also must be a deposit given on the property and the amount of that deposit stated in the contract. Depending upon the size of the initial deposit given, it may be enough to cover the full down payment of the property (minimum of 5% of the purchase price). In this case, the buyer may be only paying market rent until they are able to complete the purchase. In other cases, a smaller deposit was given OR the buyer would like to pay additional funds monthly to build up equity in the home. This built-up equity will be viewed as the down payment, in addition to the initial deposit, at the end of the contract term.

The Deposit

Upon acceptance of the rent-to-own contract, the deposit must be given to the seller and is to be held in trust with their Solicitor. This deposit amount can vary and as mentioned above, can form part or all of the down payment. Much like a traditional purchase contract, any funds that will form the down payment must be held in trust until the completion of the contract. If the rent-to-own has a 3-year term, then all those funds will be held in trust with a Solicitor for the full 3 years.

Managing the Funds

Another common reason for a decline at the end of the rent-to-own term relates to how the funds have been managed. The deposit and any funds received over and above the market rent (as set out in the contract) must be held in trust with a Solicitor. They cannot go directly to the Seller. When the time comes to complete the purchase and obtain a mortgage, the Buyer will be requested to provide a statement of the account from the Solicitor in order for the lender to verify the initial deposit and any other funds that will form the down payment.

Already Have a Rent-to-Own Contract in Place?

Does your rent-to-own contract not fall in line with the guidelines above? First, don’t panic! We do have lending options for you outside of traditional institutions. Most likely, you will need to be placed with a private lender for a short term (1 year, ideally) and then move to a traditional lender after that. Keep in mind that going with a private lender will mean that you will need a minimum of 20-25% of equity in the property. Depending on the type of property and the location, you may be required to have even more. The more rural a property, the more equity will be required. Private lenders are willing to take on more risk and therefore will also have a higher interest rate and initial fees.

Each mortgage file, whether a rent-to-own or a traditional contract is unique. It is best to consult with a mortgage professional who can help you navigate the lending options.

CLOSING COSTS! In addition to your down payment, there are a few other costs to consider when purchasing a home:

DEPOSIT ON PURCHASE
Once your offer to purchase is accepted, you will be required to submit a deposit on your purchase. The amount can vary, and so you should discuss with your Realtor what is appropriate based on the value of the property. This deposit will form part of your down payment.

HOME INSPECTION FEE
Buying a home will, for most people, be the single largest investment of your life. As a buyer, you will want to ensure you are aware of any serious issues prior to finalizing the sale. You can expect an inspection to cost between $300-$500, depending on the size and location of the property.

APPRAISAL FEE
Your lender may require an appraisal of the property that you are purchasing. This appraisal will not only confirm the value of the property, but also confirm that its condition meets the expectations of the lender. Appraisal costs can vary greatly depending on location and size of the property; you should plan for a cost of $325-$550…keeping in mind that the more rural a property is, the higher the cost of an appraisal.

LEGAL FEES
In a purchase, you will need to enlist the services of a Solicitor. Your Solicitor will finalize the purchase of your property and prepare your final mortgage documents from the lender. You may obtain a quote from your Solicitor’s office prior to your appointment.

TITLE INSURANCE
Your lender may require title insurance in order to protect the title of your new property from fraud and possible deficiencies such as unregistered utility easements. The cost of title insurance in Alberta can vary; however, you can expect the cost to be between $250-$300.

PROPERTY TAX ADJUSTMENT
If the Seller of the property pre-paid the property taxes for the current year, then you will be required to pay back the tax amount for the time that you occupied the home. Ex: If you moved into your home on November 01 and the Seller paid the property tax until Dec 31, you would need to reimburse the seller for the 60 days that you occupied the property for that year.

INTEREST ADJUSTMENT
Most likely, your first mortgage payment will not be on the day that you gain possession of your new home. You will accrue interest from the date of possession until your first payment and will need to cover that cost.

**LAND TRANSFER TAX**
If you do not live in Alberta or Manitoba, you may have to pay a Land Transfer Tax. This handy calculator will show you how much you may owe depending on the province that you are buying in and the value of the property.
https://www.ratehub.ca/land-transfer-tax

The best way to approach home ownership is to be prepared! I strive to ensure that my clients are educated on the process and that the journey to home ownership is as seamless as possible.

Contact me if you are planning on making a move!

Contact Me Today!