Rent to Own in Canada
Rent-to-own is a type of agreement in which a tenant rents a property for a specified period of time, with the option to purchase the property at the end of the rental period
How does a rent-to-own program work?
- Agree on the terms: The potential buyer and the seller agree on the purchase price, the length of the rental period, and the option fee (a percentage of the purchase price paid by the buyer for the option to purchase the property in the future).
- Make Payments– Rent-to-own tenants will make regular payments to their landlord usually more than the normal rent
- Build Rent Credit– As you make payments, you’ll build your rent credit, which can then be used as a down payment or help you qualify for a mortgage
- Own Home– At the end of the lease (or at any point during the lease) you can apply for a mortgage. If you qualify, you can purchase the home and use the rent credits towards to purchase price.
When you should go for the RTO Program
- Low Credit Score – RTO program will provide you with an opportunity to get into a home so that you can fix your credit by making consistent, monthly payments.
- Not enough down payment – Not having enough for a down payment shouldn’t stop you from becoming a homeowner. At RTO Canada, will be able to get you into a house while you build your down payment.
- Immigrant – New Canadians face the challenges of not having an established credit history. Our RTO program will help solve that by giving you time to build your score while living in a home you will soon be able to call your own.
- Self-Employed – self-employed individuals have an issue with declaring income with RTO you can get in a home so you will have the time to build some equity.
- Low Income – Conventional methods will deny you a mortgage if you have a low income. The RTO program will get you approved for a home that will eventually be yours to own.
- Divorce – Time doesn’t just heal all wounds; it can also help fix your credit issues and build a down payment. RTO will help you get back on your feet
In Canada, there are two rent-to-own programs available.
- Lease-Option Agreement: Also known as an option-to-purchase agreement, you’re given the choice to purchase the home in the future, but you’re not required to follow through. This means that you can decide not to buy the home at the end of your lease without facing any penalties or other consequences aside from losing your rent credits.
- Lease-Purchase Agreement. When entering into this type of contract, you’re agreeing to purchase the home at the end of your lease. If you fail to purchase the home – because you’ve changed your mind or you can’t qualify for a mortgage – you may have to pay penalties.
Regardless of which contract you select, you’ll have to qualify for a mortgage if you choose to purchase the property. This means that your credit score should be good your employment consistent and your debt levels manageable.
Key Factors to consider before you commit to any rent to own program
- Optional Fee – As part of your option-to-purchase agreement, you’re required to pay an upfront fee which is known as an option fee. It is usually 1%-5% of the house purchase price. This fee is nonrefundable, which means you will lose it if you decide not to purchase the home Important:If you fall behind on your rent payments or break a term of your lease, you may lose your option fee
- Length of Contract – Your rent-to-own agreement will include a specific contract length ranging from one to five years. The contract time can often be longer or shorter depending on your specific financial situation.
- Purchase Price – A purchase price for the home can either be negotiated in advance based on the current property value or set on the future price of the property.
- Rent Credits – An agreed-upon percentage of your monthly rent payments – usually ranging from 15% to 25% – is set aside as rent credits. These are then put towards your down payment when you decide to purchase the home.
- Rent-to-own Insurance – You’ll need to have rental insurance to protect your contents and yourself from liability if anyone is hurt on your property much as you do with any rental agreement.
- Maintenance and responsibilities – As a renter, you typically aren’t responsible for repairs and maintenance on the property. It’s important to note, however, that some rental companies treat you more like an owner than a renter when you have a rent-to-own agreement in place. Be sure to ask about your specific maintenance responsibilities.
Other Factors to Consider
- Rent amount
- Rent payment due dates
- How rent is to be paid
- Date to legally take possession of the property
- Contract expiry date
- Who is responsible for paying for utilities
- Final purchase price of the property
- Window of opportunity to purchase
- How much of the rent goes toward the down payment
- About of down payment required
Rent to own Example
By way of example, if you pay $1500 in rent every month for three years, and 20% of that accrues as rent credits, you would have $10,800 to put down as a payment towards the purchase of the home.
In rent-to-own, your rent is often slightly higher than the going rate in the area, as it factors in payment towards the rent credit you will receive.