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Home ownership is a key life goal for many, but with home prices in Canada averaging over $685,000, the number of people who are able to buy is decreasing. That’s where rent to own programs come in; these plans can help those wishing to get on the property ladder, but who are unable to qualify for a mortgage, or save money sufficient for a down payment.
One crucial aspect of a successful rent to own agreement is your rent to own partner – the company who provides the rent to own program and thereby enables access to the property market. There are many rent to own companies across Canada, so to help you find the right one for your situation, we have distilled the competition into the below table.
The companies named here are the very best, most reputable and trustworthy in the rent to own industry. Take a look at their details in brief, or click on their link to delve into their products in depth. And to find out everything you need to know about renting to own in Canada, read our definitive guide on the subject, below.
The concept behind rent to own home ownership is simple: rather than paying your monthly rent and having all of that money go into your landlord's pocket, leaving you no closer to home ownership, in a rent to own agreement a portion of your monthly rent payments go towards the purchase of the house you are renting. The remainder of your rent covers the cost of living in the home, as with normal rent.
In this way, you can live in the home, make rent payments, but also slowly build up a savings pool - effectively home equity - over time. At the end of the rent to own contract, you then have the option (and hopefully ability) to complete the purchase of the house outright.
The necessity for rent to own programs is obvious: Canada's real estate market is expensive and robust, and many cannot afford the sizable down payment needed to secure a home. This is especially difficult as rental prices increase, in tandem with home prices, so those renting are caught in an impossible situation - having to pay ever higher rent, and therefore unable to save up enough for a down payment for ever more expensive homes. This problem is exacerbated for those with low income.
In addition to these pressures, not everyone can qualify for a mortgage, for a variety of reasons, and rent to own agreements provide a route to home ownership for those in this condition.
For example, if you have a poor credit score and are unable to secure a traditional mortgage right away, regular payments towards your rent to own agreement will help you rebuild your credit - meaning you are more likely to qualify for a mortgage (and a good mortgage rate) in the future. And you will have been saving towards your down payment throughout the rent to own agreement as well, again increasing your chances of securing a mortgage.
A rent to own agreement does not mean that you don't have to pay rent, and it does not mean that you don't have to be able to afford the purchase price of a house; but it lets you work towards purchasing a home, via renting it, while living in it.
Rent to own home ownership works like a hybrid of renting and purchasing a home. It requires two sets of contracts - a rental contract (to cover the rental side of the agreement) and a rent to own contract (to cover the eventual purchase of the home). There are two different types of rent to own contracts, detailed below, but both equate to a portion of your monthly rent being effectively 'set aside' and accumulating, to eventually be used as payment toward the principal cost of the house. These 'set aside' payments are called rent credits.
Once the rent to own agreement terminates, the tenant will hopefully have enough in rent credits to use as a down payment, and will have built up their credit score such that they can qualify for a mortgage - and thereby secure themselves the home.
Rent to own homes differ from both renting and buying a property outright. The landlord will own and control the property throughout the duration of your rent to own agreement, so you must adhere to their rules, as you would with any normal rental. However, your monthly rent payments are not 'wasted', but instead - in part - used to secure the property for you, sometimes even locking in a home's purchase price.
There are two types of rent to own agreement:
In a lease purchase agreement, you agree to purchase the property at the end of the lease. You cannot decide that you no longer want the property, or are unable to afford it, without incurring penalties. This option works best for those who are 100% sure they will want to and be able to stay in the home long-term.
A lease option agreement, on the other hand, offers more flexibility. At the end of the rent to own agreement, you have the option to purchase the home, but are not legally obligated to. You can walk away from the property without penalty or difficulty.
Whilst this is a more sensible option for those seeking latitude in their property choices, you still effectively lose the money that has been put aside as rent credits.
Although one of the benefits of a rent to own program is avoiding the necessity of a large down payment right away, it does not mean that you don't need a down payment at all.
Most rent to own companies require what is known as an initial down payment or option deposit. This amount is less than the 5% minimum deposit required by the CMHC for a house purchase, and usually sits between 2% and 5%. The exact amount depends on the company you go with, your circumstances, and the type of rent to own agreement you have. Often some of this money is put towards the cost of the house when the rent to own program ends, but usually at least some part of this is considered a 'fee' for the option to purchase the home.
Option deposit requirements and how these funds are used is one of the factors that varies most across rent to own companies, so make sure you understand the small print when considering a specific rent to own company.
The purchase price of the house is the amount you must pay to own it. This can either be the value of the property at the end of the rent to own program, or it may be negotiated and fixed at the start of the agreement.
For longer term agreements, it is more common to leave the purchase price open; for those wishing to secure a locked in price, it is common for rent to own providers to set the property value higher than current market value, in order to counteract the likely rise in real estate prices. This can be negotiated, but it is notoriously difficult to predict a future purchase price with accuracy and so the rent to own company is likely to be conservative about protecting their risk.
As mentioned above, rent credit is the amount taken from your rental monthly payment and put aside in an escrow account as effective down payment throughout the lease term. The proportion of your rent that is used in this way can vary, but is usually 25% or thereabouts. The exact amount is calculated so that the amount you have at the end of the agreement matches the amount you would need to meet a mortgage lender's minimum down payment requirement.
If you fail to exercise the option to purchase the property during the rental period, this rent credit is effectively lost to you. However if you choose to purchase the home, the rent credit amount you have accumulated can either be returned to you, or put towards the price of the home as a form of down payment.
The length of rent to own agreements can vary from one to five years, with the average duration sitting at three years. Most rent to own agreements allow the renter the option to purchase the property at any point during the contract. This is sometimes called the option period, as in, the period of time when the option to purchase the house can be exercised. Once the contract expires, the renter must either purchase the house, or lose the option to do so entirely (as well as any option fee and rent credits). It's possible to negotiate your own term with your chosen rent to own provider.
The option fee is another name for the option deposit - the amount you must pay the rent to own provider at the start of the rental agreement to secure the option of buying the home. This fee is non-refundable.
Rent to own properties come in many shapes and sizes, and are available all across Canada. They fall into several categories:
If pursuing a traditional rental listing and hoping to make use of a rent to own agreement, you will need to be prepared to negotiate with the landlord - understanding that they may not be open to rent to own.
If you are hoping to buy a house on the open property market via rent to own, there are some rent to own companies who will allow you to do this. You must find the home you want, within a certain set of specific guidelines the rent to own company imposes, and then they will then step in to complete the purchase and put the rent to own agreement in place for your occupancy. Not every rent to own company will allow this, so be sure to check the company's terms and conditions before you start house hunting.
Most (though not all) rent to own options are highly regional, meaning that you may need to find a company local to where you want to live. There are benefits to this - many local rent to own companies have their own local property portfolios, and often the down payment requirements or fees on their own listings are less than those for openly marketed properties.
However, there are national rent to own companies as well. Choosing the right rent to own company for your needs is highly personal, and can depend on:
To find the right rent to own company for you, take a look at the table at the top of this page, which shows only the most reputable providers across Canada.
Homeowners are responsible for the maintenance of their homes; renters are not. So what happens in a rent to own home? This depends on the contract in place; some rent to own agreements state that property maintenance is not the obligation of the tenant, and instead must be handled by the property owner. Some require the tenant, as the eventual legal owner of the property, to take responsibility right away. Many split responsibilities, for example expecting tenants to take care of routine maintenance (e.g. snow clearing), and landlords to cover repairs (e.g. a roof leak). Exact maintenance liability can be negotiated when the contract is being agreed.
In almost all cases, the following fall squarely at the feet of the landlord: property insurance, property taxes, and HOA fees. These are not the obligation of the tenant until the purchase option is exercised, and the tenant becomes the owner.
Property taxes can be expensive, but as mentioned above, it is usually the responsibility of the property owner, not the tenant. However, knowledge of the level of property tax is important information in understanding whether a home will be affordable in the long-term.
In addition, there are often taxes associated with the purchase of a property. For example, in Ontario this is called the Provincial Land Transfer Tax. The amount of this tax can vary widely, from 0.5% to 2% of the home purchase price. Wherever you are in the country, you must account for the relevant taxes when calculating how much you will need to complete the purchase of your home. All home buyers face this hurdle, and rent to own situations are no different.
House prices can change quickly. The rent to own contract in place dictates whether the tenant needs to worry about these changes. If the tenant and rent to own company agreed to lock in the purchase price of the home at the start of the agreement, then property market fluctuations do not affect the tenant's bottom line - they know exactly how much they need to pay to secure the home when the lease expires.
However, house price changes can affect whether proceeding with the purchase is a good idea or not. If the house has appreciated in value, then the tenant can effectively buy it for less than market value thanks to the price specified in their contract. But if the house has depreciated, then they risk paying more than current market value. In both cases, the decision of whether or not to proceed with purchase comes down to the individual situation and numbers involved.
In cases where there is no lock in of the purchase price, the tenant is subject to real estate market changes, and the eventual purchase price of the home may be much higher or lower than they anticipated when beginning their rent to own journey. This makes budgeting and saving in these situations much harder. If property prices have risen, the tenant must find more money than they expected to finalize the purchase; if they have fallen, they need less.
All of the above is true for lease option contracts, but those with lease purchase contracts cannot choose to walk away from a purchase - even in the instance of significant house price changes - without incurring penalties that may tip the scales of the eventual decision.
Understanding potential changes in property values and how they might affect your ability to buy the home is an important step in deciding what type of rent to own agreement you are comfortable with.
Renters are often required to have renter's insurance, and this is the case in rent to own situations as well. While the property is being rented, the tenant is not liable for property insurance or mortgage insurance. However, when the tenant becomes the owner, property insurance and an insured mortgage are standard requirements.
All home buyers know that finalizing a property purchase is expensive. You must take into account all costs when making your purchase calculations; costs can range between 1% and 4% of a property's value, and are in addition to the purchase price of the home.
In order to qualify for a rent to own agreement, you need to:
Rent to own is a hot topic in Canada, as housing shortages continue and a significant number of people (including the majority of young Canadians) are unable to afford a home of their own. The good news is that CMHC is investing heavily in this sector, with $200 million put aside in 2022 to help contractors and developers increase the number of rent to own homes.
A rent to own agreement can help you to work towards property ownership, and does not require a mortgage at the outset. However, you will need to be able to secure a mortgage by the time you come to the end of the rental term, in order to source the funds needed to buy the home. Mortgage approval is a stumbling block for many who choose the rent to own path, but by making rent to own payments regularly, you are improving your credit, increasing your chances of mortgage approval, and becoming eligible for better mortgage rates. And remember that mortgages are available from many types of lenders, including private lenders, who may not have such rigorous eligibility criteria.
No. Most residential mortgages require you to inform them of any changes in circumstance, including if you rent out part or all of the home. This is true even if you offer free rent occupation to someone.
The CMHC requires a minimum 5% deposit to buy personal property in Canada; but a rent to own agreement can provide earlier access to the housing market, as it does not have this threshold. Most rent to own companies require somewhere between 2% and 5% for a down payment at the start of the contract - though some companies do not require any down payment at all. However, you will need to have sufficient payment saved by the end of the lease (including rent credits) to meet the 5% CMHC threshold needed for a mortgage.
That depends on what type of rent to own contract you have. In a lease option contract, you can walk away from the property, losing your rent credits in the process, but not penalized in any other way. If you have a lease purchase contract, you are legally obligated to purchase the home, and can face serious consequences if you do not exercise your option consideration.
This depends on the value of the property; rent to own companies will want to make sure you'll pass a mortgage lender's affordability tests when you come to apply for the mortgage needed to purchase the home. The higher your income, the more you'll be able to borrow via a mortgage, and the higher value a property you'll be able to secure a rent to own agreement for.
Yes, probably. Poor credit is a common reason people are unable to secure a traditional mortgage right away; it takes time to rebuild a credit score - especially after a bankruptcy or consumer proposal - and rent to own is one way to do this, while saving towards a home. But you need to make sure that the steps you plan to take during your rent to own rental term are sufficient to increase your credit enough to meet mortgage lender's criteria, by the time the lease expires.
Credit is not a major issue for those seeking a rent to own rental contract; income is instead a much bigger consideration.
Lease purchase contracts can be considered riskier than lease option contracts, because they legally obligate the tenant to purchase the home by the end of the rental agreement - regardless of circumstances. This means the tenant does not have the flexibility of an option consideration. Successful agreements for rent to own work when the tenant is informed about their choices, and makes the one that best suits their particular circumstances.
