3rd Birthday Lessons

Ownership Solutions celebrates our 3rd “birthday” this month.

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Here are 3 lessons we’ve learned over the past 3 years:

  1. 1. With this type of real estate, it’s not about location, location, location – it’s about PEOPLE, PEOPLE, PEOPLE.
  2. There are many worthy families out there who deserve a 2nd chance at home ownership, even where the bank has said “NO”. Our track record of success with clients is proof of this fact.
  3. Rent to Own needs to be just that – Rent to OWN. There are too many Rent to FAIL companies out there who are kicking people when they are down financially instead of truly providing them with the help they need through well designed lease purchase programs.

Thank you to everyone who has helped make the past 3 years a success. We look forward to helping many more families with home ownership going forward!

 

Case Study – Dental Collection Dilemma

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The client for our first case study was referred to us by a mortgage professional with a tight timeline. The client had good verifiable income as a mobile crane operator, a 5% down payment, but an unknown credit blemish that jeopardized his deal (and savings).

In this case, the Realtor unfortunately had the client remove the financing condition without a commitment in place, and the client later found himself unable to obtain an approval for financing. With a firm Agreement of Purchase & Sale, thousands of dollars tied up as a deposit, and just under 2 weeks until closing, this client needed an alternative since a mortgage wasn’t an option.

The Problem:
Why Couldn’t The Client Qualify for a Mortgage?

Unbeknownst to the client, he had a collection showing on his credit bureau which he thought was in great shape. It turns out when he had last moved, a dental bill for about $300 had gone to the old address, and ultimately made it’s way to collections. When he found out about the bill he went to pay it immediately, but the dentist wouldn’t accept payment because it had been referred to collections, and the collection agency had since gone out of business. The client had strong credit otherwise but this one collection was driving the client’s credit score down to 586, and with no way to get this collection off his credit bureau in time to qualify for a mortgage, the client was stuck. The client only had 5% down at the time, so a “B” lender or private lender wasn’t an option.

The Solution:
The Homeowner Prep Program Saved the Deal

gord-case-study-summaryIn this case we setup this client in our Homeowner Prep Program, made sure he was able to buy the home he had negotiated a great deal on, made sure his $5,000 deposit was not lost when he was unable to close, and gave him a 2nd chance when the mortgage lenders and insurers had said “NO”.

Our Homeowner Prep Program was able to provide 95% LTV financing when no other lenders were willing to do the deal. This gave the client the opportunity to purchase the home he wanted today while having the time required to get “mortgage ready”. This case study is a perfect example of how lease purchase programs (or rent to own programs) can be win-win scenarios when structured with the client’s ultimate success in mind.

The Outcome:
How Everyone Won

In each and every deal, we want to make sure all parties “win” in the transaction.

  • The client won since he was still able to purchase the home of his choice and our program prevented him from losing his $5,000 deposit when he was unable to close on the purchase. The program provided the client with guidance and enough time to get “mortgage ready”. In addition, the client built an even stronger down payment of 11.5% through the program to ensure qualifying for a mortgage at the end of the term was no problem.
  • The mortgage professional was able to earn 100bps on an otherwise dead lead and ended up with a satisfied client who continued to work with him through his credit repair, and to qualify for a mortgage at the end of the Homeowner Prep Program term.
  • The Realtor was able to close on a deal instead of dealing with the nasty consequences of a failed purchase transaction.
  • The seller was able to close the sale of their home in a timely manner which was important as they had retired and were moving to Florida.
  • The funding partner was able to purchase a turn-key income property with excellent cash flow, a responsible tenant with a vested interest in taking care of the property, and a pre-determined exit strategy in 3 years time.

Compare this to the mess the client would have faced if he were unable to close on his purchase and it is easy to see how the transaction became a win-win for all parties involved.

Most Mortgage Agents are Blind to the GAP in their Product Lineup

As a mortgage professional, are you even aware that there is a huge GAP in your lending product lineup? Did you know that this “black hole” is that is costing you deals, satisfied clients, and thousands of dollars every year?

If you care to know more about this gap, read on. We’ll show you exactly where this GAP exists, and how you can be one of the few mortgage pros to tap into this underserved niche in the mortgage market.

Identifying the GAP

Before we discuss why the gap matters, or how to fill the void, we need to clearly identify the gap we’re talking about. The yellow box below is the GAP, and Ownership Solutions fills it for you:

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Here is how most agents place their clients with lenders:

  • For clients with good credit and 20% down, any mortgage agent can get a conventional mortgage.
  • For clients with good credit and 5% to 20% down, any mortgage agent can get high-ratio financing thanks to CMHC, Genworth, or Canada Guaranty.
  • For clients with poor credit or who have other financing challenges but at least 15% down, any agent can take them to a “B” lender to get the deal done.
  • For clients with poor credit who have less than 15% down, there is a GAP!

The gap is this: 
Clients with 5-15% down payment who don’t qualify for high-ratio financing through CMHC, Genworth, or Canada Guaranty. 

What the Gap Means

Ok, so now we have clearly identified the gap. Next, why does it matter? What does it mean?

First, this matters because the gap is big. Most of your declines will fall into this gap.

Second, what this means is you’re missing out on a huge opportunity.  Just imagine if you could fund even half of your declines…

  • How many more satisfied clients would you have?
  • What would that do for your income?
  • How many more referrals do you think you would get?
  • Considering many of these declines are first-time buyers, how many life-long clients might you gain?
  • What would being able to fund more deals do for your referral relationships with other professionals (eg. Realtors)?
  • How much more time could you spend doing deals instead of prospecting?

If you take a moment to answer even a few of these questions, you’ll quickly realize why the gap matters and what it means. Naturally, the next step is to plug the gap or “fill the void”.

Filling the Void

With no extra work on your part, how would you like to start funding declined applicants that are currently falling into this “black hole”?

Ownership Solutions offers our Homeowner Prep Program specifically to address this gap in your lending product lineup.

Here are 2 links to help you get started today:

  1. About Our Lease Purchase Program
  2. Instructions for Submitting a Client File

Your Competitive Advantage as a Mortgage Professional

competitive-advantageFirst things first, let’s ditch the notion of competing on rate. That is NOT a competitive advantage for you as a mortgage professional.

Why not? Well for starters, the banks offer great rates for “A” clientele. Next, there are are plenty of websites out there that let consumers do their own rate shopping. There is a trend of commoditization in the mortgage industry, and if all you’re doing is offering “the best rate”, you’re doomed. Besides, do you really want to be involved in a race to the bottom? Do you want to be constantly buying down rates for your clients and making peanuts on each deal, or do you want to get paid what you’re worth?

Lowest Rate & Access to Lots of Lenders Are NOT Unique

Your competitive advantage as a mortgage professional is NOT the “lowest rate” and “access to 40+ lenders”. There are over 15,000 licensed mortgage agents and brokers in Ontario and to differentiate yourself, you have to do better than that.

Advertising that you have the “lowest rate” and access to X number of lenders is like a Realtor advertising they have “MLS access” – so does every other Realtor, plus consumers can browse MLS listings online.

Service & Customized Advice Are What Matter 

Your competitive advantage as a mortgage professional IS what you’re able to do for clients that banks and other agents cannot.

  • It’s the customized mortgage and financial advice you’re able to provide based on your extensive knowledge and real life experience.
  • It is knowing (and communicating) the important terms apart from rate which make different products a good or bad fit for a client’s situation.
  • It is understanding and providing unique products in the right circumstances to help your clients get what they want.

Make Sure You CAN Give Clients What They Want

When clients call, email, or fill out your online application, they typically want one thing – financing for their home. As a mortgage agent you need to make sure you can offer top notch advice, the right product to suit each client’s individual needs, and make sure clients end up with financing which is why they contacted you in the first place.

Why Lease Purchase Programs Matter

When clients can’t qualify with an “A” lender, you look to the “B” lenders. If that fails you may need to consider private funds. However, when clients don’t have at least 15% down there isn’t much out there for them.

Fortunately, there are alternatives such as a well structured lease purchase program or rent to own program. Our Homeowner Prep Program is a lease purchase program that allows clients to get into a home of their choice from the MLS and helps you build your business. You’ll earn a finder’s fee, have a satisfied client who will hopefully provide referrals, and you’ll have a client needed a mortgage in 2-4 years time. When you help clients that other agents can’t, you are more likely to earn a client for life.

Make sure you have a solution for every client. Click here to learn more about how you can use our Homeowner Prep Program as part of your competitive advantage!

Rent to Own SAQ – How can you make sure the tenant-buyer completes the required credit repair?

Another very important question you should be asking is “how do you make sure the client improves their credit?”

There are two ways we address this important question.

First, before entering a rent to own program we test to see if the client is really committed to the goal of home ownership. During the clinet interview we ask about their credit and check to see if they are willing to do what it takes to make the improvements they’ll need to get mortgage financing in the future.

Second, once the client is setup in their rent to own program we set them up with a credit repair specialist to put together a plan to help them get from point A to point B efficiently. The credit repair specialist will check in with them every few months to ensure they are making progress and to adjust the plan as required. Improving credit isn’t always easy, and it does take work but anyone committed to the task can make significant progress.

Like a personal fitness trainer, we can’t do a client’s pushups for them, but we set them up with a credit repair specialist who guides them through the minefield of credit to coach them and make their journey from point A to point B as easy as possible.

Rent to Own SAQ – What if the company who puts a Rent to Own deal together goes out of business?

Another great should ask question is “what happens if the Rent to Own company goes out of business?

Ownership Solutions essentially plays the role of match maker in the rent to own transaction. We simply pair investors with clients to create win-win rent to own transactions. s

However, all agreements are made directly between the client and investor. This means if Ownership Solutions or the company who put together the rent to own deal goes out of business, the rent to own will carry on as expected between the client and investor.

Rent to Own SAQ – What if the investor doesn’t honour the option agreement in a Rent to Own?

The investor holds title during the rent to own program, which means they have a greater degree of control over the property. Another question you should be asking is about the investor: “what if the investor doesn’t honour the option agreement?” Again, this is a should ask question that nobody really talks about.

This is another potential situation that highlights the importance of having clearly written agreements in place for every rent to own transaction. Even with the proper agreements in place the truth here is that if the investor decides not to honour the option agreement, litigation may be required for the client to protect their option to purchase.

These sort of questions also highlight the importance of working with the right investors. I have seen instances where clients have entered into rent to own situations without proper written agreements in place and unethical investors have used the lack of formality to later take advantage of the clients.

Ownership Solutions screens both clients and investors to ensure we are working with the two parties who are really committed to working together to achieve win-win results. We also make sure that the proper written agreements are in place on every rent to own transaction to protect the interests of both parties.

Rent to Own SAQ – What if the investor faces divorce, dies or goes bankrupt in a Rent to Own?

We are often asked about how things work if something happens in the life of the client. Another very important question you should be asking is about the investor: “what if the investor faces divorce, dies, or goes bankrupt?” Again this is a should ask rent to own question that nobody seems to talk about.

The truth here is that this can become a tricky situation and does pose a risk to the client. In each of these situations in the life of the investor, the investor or estate has some affairs to settle and the rent to own property can come into question. For this reason, it is critical to have strong written agreements in place so that the client’s interests are well documented and protected in any of these circumstances.

Seeing as the client lives in the rent to own home during the program, they will quickly become aware of any intention by the investor or their estate to sell the home and can use their option agreement as a means of blocking a sale. I have never seen this happen, but it is a possibility and the reality of this situation is that litigation could be required for the client to protect their purchase option.

Rent to Own SAQ – How do you ensure the tenant-buyer understands the Rent to Own agreements?

Since rent to own is a mortgage alternative, it works a little differently so it is important that the client is fully aware of both the benefits and drawbacks of their rent to own program. An important question mortgage brokers and Realtors should ask is “how do you make ensure the client understands rent to own?”

The first step is for us to have each client explain how rent to own works in their own words when we conduct our initial interview. This quickly lets us gauge where their understanding of the rent to own program is at and allows us to explain further or clarify where needed.

The second way we ensure the client understands the rent to own program is by clearly highlighting the risks as part of our screening process and make sure each client has acknowledged these risks.

Finally, we require every client to obtain independent legal advice on the agreements they will be signing. This gives them the opportunity to get unbiased expert advice on the rent to own program and then commit with a full understanding of how the program works and exactly what they are agreeing to.

Rent to Own SAQ – What if the home appreciates more than expected in a Rent to Own?

Market conditions pose a real risk to any homeowner, but they can go either way and also be a huge benefit to homeowners. Another question you should have the answer to is “what happens when the market appreciates more than expected?”

The very simple answer to this question is – the client wins!

Most rent to own programs lock in the purchase price upfront, so any additional appreciation goes straight to the client. This is a great benefit for the client and means that they can either keep their additional equity in the deal (and enjoy lower mortgage payments), or they can take a higher mortgage to free up some cash.

You might also ask “wouldn’t the investor be upset if the home appreciates more than expected?” The truth here is that some investors would probably kick themselves on all the extra profit they missed out on, but most will simply be happy that everything worked as planned. The investors were able to help a client achieve home ownership while enjoying monthly cash flow and a great return on their relatively passive investment. So really, why should they be upset?

All in all, if the market appreciates more than expected, everyone wins and the client completes the deal in an even better situation than they originally expected.