Canadians Can Now ‘Rent-To-Own’ A Home & An Expert Broke Down Exactly How It Works

If you’ve always dreamed of buying a home in Canada, but don’t yet have enough for a down payment, it may be worth considering rent-to-own.

Simply put, rent-to-own is a way for renters in Canada to, you guessed it, lock in their dream home even if they don’t have the money for it yet.

To learn more about the concept, Narcity spoke with real estate expert and realtor Trish MacKenzie.

“Rental with option to buy is a lease where you agree to rent for a specific period of time with the option to buy at the end of the term,” MacKenzie said.

Often terms are negotiated and then a contract is signed. This contract generally specifies the duration of the lease, from one to five years, as well as the purchase price.

“You agree to buy a property years in advance, in most cases, and the responsibilities of the property will rest with you in the meantime, depending on how the agreement was constructed,” she said. Explain.

To get started, MacKenzie recommends hiring a team with experience in this type of situation — a lawyer, financial advisor, rent-to-own company, or realtor — so you can determine what’s best for you. .

Then, of course, you want to delineate the property and do everything you would if you were buying outright. Ask yourself if the area matches your lifestyle? Is it a good investment? Will it be refurbished?

“Once you’ve decided the property is the right choice, you’ll need to reach an agreement with the seller,” MacKenzie explained.

This means determining the terms of your lease-to-own agreement.

“There are generally two types of lease-to-own agreements,” MacKenzie said.

The first is the “rental option”, in which case “you rent the house for a period of time and have the option of buying at the end of the term, although the purchase is not an obligation”.

The other option is “lease-purchase”, where, after the end of the lease, you must buy the property.

“Sometimes this type of deal will require an upfront fee, like a down payment, and failure to complete the purchase could result in a penalty, like losing the deposit,” the real estate expert continued.

Of course, once that deadline arrives, you’ll need to apply for a regular mortgage, so you’ll need to make sure your finances are in order for that.

As with everything, there are pros and cons to rent-to-own, MacKenzie points out.

“Some benefits include time to save for a down payment and boost your credit score to get a better mortgage at the time of purchase.”

She also pointed out that rent-to-own allows for more security, especially if the market is up, and can provide buyers with a much cheaper down payment.

However, she mentioned that “it may end up costing more”.

“This is especially true if you set a price and the market goes down by the time you get to your call option,” MacKenzie said.

Rent-to-own is also not building an investment, like a mortgage on a house.

“While renting, you’re often not building equity in the home, and you’re not able to invest those funds elsewhere, so it affects you in the same way as traditional renting.”

Either way, if you decide to rent-to-own, you should do so with caution.

“As with any financial, real estate or other investment, it is so important to carefully consider how this solution may work (or not) for you and whether it is suitable for your personal situation before entering into a long-term contract.”

So, now that you know how exactly it works, you can hopefully be better equipped to determine if rent-to-own is right for you.

The cover image of this article was used for illustrative purposes only.

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