Understanding Rent to Own

Understanding Rent to Own

With the introduction of the stress test and higher interest rates, qualifying for a mortgage became a challenging process. So, what is the alternative? 

Most Canadians may not know this, but one of the alternatives to being able to own a home, even if you don’t qualify for a mortgage, is to choose the Rent to Own option. Essentially, it is a way to homeownership to get the house of your dreams while you are paying rent.  The basic idea is that you rent a home for a certain period of time with the objective of buying that home at the end of your contract. In other words, you pay a monthly rent, and a percentage of this amount goes towards the downpayment for your house purchase in the future. You have the chance to put money aside for the down payment while you live in the house you would like to own.  

What you should know

Opposite to what happens in a regular lease, as a Rent to Own you will most likely be responsible for carrying the cost of home maintenance and repairs. You should also know there are two agreements between the tenant (buyer) and the landlord.  You can have the “option to purchase” and the “lease agreement”.  This means you need to sign both contracts before you can get the keys to your home. Usually, the lease term of this program is between 3 to 5 years, depending on your financial situation.  The rent to own lease agreement will have the details like the amount of rent you will have to pay each month and the date on which your lease period will end. This agreement will have in detail the amount of rent you will have to pay each month and the date on which your lease period will end the date when you will be legally entitled to take possession of the home. The option to purchase agreement signed between you and the landlord gives you the power to buy the home from your landlord. This agreement will legally obligate your landlord to sell the house to you, if and when you decide to avail this option.

Are there risks?

One of the major ones is that the tenant will not qualify for a mortgage at the end of the lease. Seek legal advice before signing a rent-to-own contract to ensure that you understand the risks completely.

To know more about this program, contact our team at The Costa Team.