From sharing houses, to moving away from the city, to turning basements into rental suites, to investing in pre-construction condos, people in Toronto are looking at creative ways to get into the hot housing market, including rent-to-own agreements. So, is rent-to-own a good option to consider?
What is rent-to-own?
With a rent-to-own agreement, renters can save for the down payment of the home, as they live in it, to eventually buy it. An agreement is made between the landlord and renter to set aside a portion of the rent money for the down payment. When the required down payment amount is accrued, the renter can buy the home from the landlord.
How does it work?
In Ontario, there needs to be a lease agreement between the renter and landlord, as well as a lease-purchase agreement. A lease-option agreement is also a possibility, where you have the option to purchase the home in the future but are not committed. When these agreements are signed, a designated amount of the monthly rent is set aside and saved.
Who’s eligible for rent to own?
It’s possible to find rent-to-own opportunities privately with landlords who currently have properties for rent, but there are also rent-to-own companies which can make the process easier. However, you’ll need proof of employment and you must meet minimum income requirements.
The main benefit of rent-to-own is the ability to slowly contribute to a down payment over time, and if you have difficulty qualifying for a mortgage, you can also pay down debt and improve your credit score in the meantime. There’s also the added benefit of living in the home before owning it to see how you like it.
Financially, the monthly rent-to-own payments will be higher than mortgage payments. Also, if you ultimately choose to not purchase the house, or you can’t qualify for home ownership at the end of the agreement, you’ll lose the money saved for the down payment. With this kind of agreement, tenants are also usually responsible for the home maintenance and repairs during the rent-to-own period.
Looking for other ways to get into the Toronto housing market? Read more here.