Frequently Asked Questions
Can I buy a house in Canada without a mortgage?
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.
Can I rent out my house without telling my mortgage lender?
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.
What is the minimum down payment needed to buy a house in Canada?
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.
What happens if I choose not to buy the rent to own home?
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.
What are the income requirements for a rent to own property?
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.
Can I get a rent to own agreement if I have a past consumer proposal?
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.
What credit rating do I need to rent to own?
Credit is not a major issue for those seeking a rent to own rental contract; income is instead a much bigger consideration.
Why is a lease purchase contract riskier than a lease option contract?
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.