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

Is it right for you? 👇

An apartment building. Right: A home with a 'For Rent' sign.

An apartment building. Right: A home with a 'For Rent' sign.

If you've always dreamed of buying a house in Canada but don't have enough for a down payment just yet, it might be worth looking into renting-to-own.

To put it simply, renting-to-own is a way for renters in Canada to, you guessed it, lock in that dream home even if they don't have the cash for it yet.

To get the low down on the concept, Narcity sat down with real estate expert and realtor Trish MacKenzie.

"Rent-to-own is a lease where you commit to renting for a specific period of time with the option to purchase at the end of the term," said MacKenzie.

Often, the terms are negotiated, and then a contract is signed. This contract usually outlines the length of the lease, from one to five years, as well as the buying price.

"You are agreeing to buy a property years in advance, in most cases, and the responsibilities of home ownership will fall on you in the meantime, depending on how the agreement has been built," she explained.

To begin with, MacKenzie recommends getting a team that has experience in this type of situation —a lawyer, a financial advisor, a rent-to-own company or a realtor — so that you can figure out what works best for you.

Then, you want to, of course, scope out the property and do all the things that you would if you were buying outright. Ask yourself, does the area fits your lifestyle? Is it a good investment? Will it be redeveloped?

"Once you’ve decided the property is the right choice, you will need to reach an agreement with the vendor," explained MacKenzie.

This means figuring out the terms of your rent-to-own agreement.

"There are generally two kinds of rent-to-own contracts," said MacKenzie.

The first of which is the "lease option," in this case "you lease the home for a period of time and have the option to purchase at the end of the term, though the purchase is not an obligation."

The other option is the "lease-purchase," where, after the lease is up, you have to buy the property.

"Sometimes this type of agreement will require an upfront fee, like a deposit, and failure to follow through with the purchase could result in a penalty, like the loss of the deposit," the real estate expert continued.

Of course, once that deadline comes, you'll have to apply for a regular mortgage, so you'll have to make sure your finances are in order for that.

As with anything, there are pros and cons to renting-to-own, outlines MacKenzie.

"Some benefits include time to save for a down payment, and build up your credit score to secure a more favourable mortgage at the time of purchase."

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

However, she did mention that "it can end up being more expensive."

"This is especially true if you lock in a price, and the market declines by the time you get to your option to purchase," said MacKenzie.

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

"While leasing, you are often not building equity in the home, nor are you able to invest those funds elsewhere, so it affects you the same as traditional leasing."

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

"As with any financial investment, real estate or otherwise, it is so important to carefully consider how this solution can work (or not work) for you and whether it suits your personal situation before entering a lengthy contract."

So, now that you have a bit of background on how exactly it works, you can hopefully be better equipped to figure out if renting-to-own is the move for you.

This article's cover image was used for illustrative purposes only.

Tristan Wheeler
Tristan Wheeler was a Creator for Narcity Media focused on money and budgets and is based in Toronto, Ontario.