Ravi  Thakur

Ravi Thakur

BA, LLB, CIPS, SRS, ABR® Lic. Sales Representative

Right at Home Realty Inc., Brokerage*

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Rent-To-Own Home Buyer Program

What is Rent to Own?

Simply put, rent-to-own is renting with the option to buy. The deal is setup using an Occupancy Agreement and an Option to Purchase Agreement. With rent-to-own, then tenant-buyer has the option to purchase the home at a pre-determined price within a given time period. Rent to own is also known as lease to own, lease option, lease purchase, or rent to buy.


What are Benefits of Rent to Own?

There are several benefits of rent to own, but the biggest benefit to our clients is that we are often able to say yes when the bank has said no. With rent to own programs, clients can:

  • Use a lower down payment
  • Build equity (through monthly option credits)
  • Build sweat equity (through building improvements)
  • Avoid expensive closing costs
  • Take time to repair/re-establish credit


How Does Rent to Own Work?

  • The tenant-buyer puts forward a small down payment. This is credited towards the purchase price when they purchase.
  • The tenant-buyer makes monthly payments and a portion of each payment accumulates additional down payment funds which are also credited towards the purchase price when they purchase.
  • During the rent to own program the tenant-buyer works to establish or repair their credit.
  • At the end of the program the tenant buyer applies for financing through a conventional lender.
  • With an accumulated down payment and a mortgage pre-approval, the tenant-buyer purchases the home and officially becomes a homeowner!

Non-refundable Upfront Fees

In a rent-to-own agreement, you (as the buyer) pay the seller a one-time, usually non-refundable, upfront fee called the option fee, option money, or option consideration. This fee is what gives you the option to buy the house by some date in the future. The option fee is often negotiable, as there’s no standard rate. Still, the fee typically ranges between 3% and 7% of the purchase price.


Applying Rent to the Principal


You’ll pay rent throughout the lease term. The question is whether a portion of each payment is applied to the eventual purchase price. As an example, if you pay $1,200 in rent each month for three years, and 25% of that is credited toward the purchase, you’ll earn a $10,800 rent credit ($1,200 x 0.25 = $300; $300 x 36 months = $10,800). Typically, the rent is slightly higher than the going rate for the area to make up for the rent credit you receive. But be sure you know what you're getting for paying that premium.



Key Takeaways

  • A rent-to-own agreement is a deal in which you commit to renting a property for a specific period of time, with the option of buying it before the lease runs out.
  • Rent-to-own agreements include a standard lease agreement and also an option to buy the property at a later time.
  • Understand that lease-option contracts give you the right to buy the home when the lease expires, while lease-purchase contracts require you to buy it.
  • You pay rent throughout the lease, and in some cases, a percentage of the payment is applied to the purchase price.
  • With some rent-to-own contracts, you may have to maintain the property and pay for repairs.


Final Thoughts

Availing the option of rent to own homes in Ontario is the best way to purchase a home if you don’t have the funds to buy a house or have poor credit rating. This program is a simple concept, but you must have a proper understanding of the type of rent to own agreements necessary in Ontario that you would have to sign when availing this program. The information given above will surely help you in taking full advantage of this amazing program and become a proud home owner now and in the future.

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