Rent-to-own programs in Canada are becoming increasingly popular. With the current economic climate, and the price of homes rising considerably since 2020, many homeowners have found it challenging to purchase a home. Millennials and first-time home buyers have found it particularly difficult. Additionally, banks are more particular about loaning money out than before the housing market crash of 2008 and 2009. 

There are two ways to enter into such an agreement; directly with the property owner or through a rent-to-own company. The agreement usually states that the renter will agree to purchase the property at an agreed future price. This price is generally calculated by looking at the current price, adding a moderate price appreciation per year, and then deciding on a future price. 

When the tenant pays their monthly rent, a portion of the rent payment will go towards a down payment in the future when the option to purchase the property is exercised. It is, however, worth noting that an initial deposit will usually be needed when the agreement is entered into. This amount will typically be much less than what would usually be required. 

There are a few benefits for home buyers entering a rent-to-own agreement. This agreement allows buyers the banks would typically decline to enter the property market. Two common hindrances for most new home buyers are not having a large enough deposit or having a poor credit rating. Rent-to-own helps alleviate both these problems. 

By allowing you more time to accumulate additional funds through a portion of your rent going to a down payment (called rent credits), you can have a larger down payment for when the option to purchase is exercised. Additionally, you have more time to fix your credit rating before applying for a mortgage if you have a poor credit score. 

Rent-to-own agreements can be anywhere between 1 and 5 years long. There are generally two types of rent-to-own agreements: 

1. Lease-Option agreement 

This is a more flexible agreement, where you may have the option to purchase the home in the future but are not obliged to do so. 

2. Lease-Purchase agreement 

This is a less flexible agreement where you agree to purchase the home in the future, and failure to follow through may result in penalties. 

It’s easy to see why these rent-to-own agreements are gaining traction – it enables the home buyer to move into their dream home today, allowing them more time to get their finances in order to prepare for the biggest purchase of their life!