With home prices skyrocketing across Canada, purchasing a home is becoming a distant dream for many. In this scenario, programs such as rent-to-own can be helpful in fulfilling the dream of home ownership. With the help of a rent-to-own program, you can start renting a home that you want to purchase with the option to buy it in the future.
A rent-to-own agreement gives you the option to purchase the home you are renting either during or after your lease expires. With a rent-to-own agreement, the landlord is legally bound to sell the home to you and cannot sell the home to anyone else during the option period of the agreement. The option period is the time during which you have the option to purchase the home. A portion of the rent paid each month goes towards the down payment for the home purchase.
Rent-to-own homes can be an alternative for those interested in buying a home but cannot do so in a conventional way, such as those who don't have enough down payment or those who cannot qualify for a mortgage due to low credit scores.
| RTO Company | Areas Served | Terms | Minimum Option Fee / Downpayment |
|---|---|---|---|
| Royal Rouge Properties | NS, NB, PE, NL, AB, SK, MB | 2 - 4 years | $15,000 for homes up to $375,000 or 4% for homes over $375,000 |
| Requity Homes | Northern ON (Sudbury, Thunder Bay, North Bay, Sault Ste. Marie, SK (Regina, Saskatoon), AB (Edmonton), MB (Winnipeg) | 2 - 5 years | 2% of home purchase price |
| Clover Properties | ON, QC, AB | 2 - 4 years | $15,000 for homes up to $450,000 or 5% for homes over $450,000 |
| HOS Financial | ON, QC, AB, NS | N/A | Greater of $10,000 or 3% of home purchase price |
| Rent to Own Homes GTA | ON | 2 - 5 years | 5% of home purchase price |
| Fraser Valley Rent 2 Own | Fraser Valley | 2 - 3 years | 5% of home purchase price |
| Jaag Properties | ON | 2 - 4 years | 3% of home purchase price |
| GVC Property Solutions | BC | 2 years on average | From 0% of home purchase price |
| Homesy | Greater Toronto and Hamilton Area | 2 - 4 years | 5% of home purchase price |
Renting to own a home has two parts — a rental agreement and a rent-to-own agreement . The arrangement works similarly to a rental agreement where you pay the monthly rent to the landlord; however, a portion of the rent goes towards an eventual down payment for the home purchase. The portion of the rent that is set aside for the downpayment is known as a 'rent credit.'
Rent-to-own contracts generally require you to make an upfront payment of 1% to 5% of the purchase price, known as an 'option fee, 'option to purchase deposit,' or a 'downpayment.' This non-refundable deposit gives you the option to buy the home and is applied to the purchase price if you decide to buy the home.
Rent-to-own agreements tend to have a set timeline, which typically ranges between two to five years. You can also lock in a purchase price with the agreement.
There are two types of rent-to-own agreements:
Whether you sign a lease-option or lease-purchase agreement, rent credits will be accumulated to be eventually applied toward the principal of the house. Should you choose not to purchase the home, you will lose the rent credit that you have built up and may face penalties depending on the type of contract.
Let’s say that you found a home listed on the market for $400,000 that you would like to purchase but were declined for a mortgage. You still want to purchase the home, so you enter into a rent-to-own agreement with a rent-to-own company. The rent-to-own (RTO) company sends you two agreements, a lease agreement for a term of three years and an option-to-purchase agreement (lease-option), which will set a home price and rent credits rate. The agreement details would look like this -