Updated: Apr 5
With today’s housing prices going through the roof in many city centers across Canada, it can be really tough for people to be able to afford a home. Particularly in markets such as Toronto, Vancouver, and Montreal, where housing prices have been increasing by large amounts over the past few years, being able to afford the listing price has proven to be out-of-reach for many people.
Additionally, getting mortgages approved has also become somewhat challenging, as lenders are more thorough in analyzing compliance with their criteria, and have adopted stricter practices when it comes to determining whether or not borrowers should be approved for mortgages.
Even though mortgage rates have been as low as they have been in recent years, home loans are still difficult to approve due to high down payment prices and strict loan criteria.
So what does a home buyer hope to do? Fortunately, there are other options to take advantage of to make homeownership a reality, such as rent-to-own. This is a creative alternative to buying a home and is a great way to finally become a homeowner.
But what exactly is ‘rent-to-own and how does it work?
How Does Rent-to-Own Work in Ontario?
A rent-to-own arrangement is one in which you pay rent every month to the owner/landlord, just like you would as a tenant. However, with a rent-to-own program, a portion of the rent you pay goes towards your down payment for the purchase if you buy the home down the line. In Ontario, a rent-to-own program allows you to grow your down payment while living in the home as if it was your own.
Rent-to-own programs in Ontario offer homebuyers the chance to be proactive in their purchasing endeavors and take steps to become homeowners despite many obstacles that may have prevented them from buying the conventional way. Poor credit and insufficient funds for a down payment don’t have to be hurdles that prevent you from finally having your name on the title of a property.
Rent-to-Own Ontario Laws
According to Ontario law, two agreements must be entered between you (the buyer) and the landlord: the rent-to-own “option to purchase” agreement and “lease agreement.” Both contracts will need to be signed before access is given to the property, much like a typical lease agreement or purchase agreement in a traditional lease or purchase scenario, respectively.
There are certain terms within these agreements that are worth emphasizing. For instance, the lease term is an essential component of the rent-to-own contract and specifies the fixed term that you will be leasing the property from the landlord or company. Generally speaking, lease terms tend to last anywhere from three to five years in length, depending on the specific situation.
The duration of the lease term should give you enough time to repair your credit (if necessary), putting you in a much better position to get approved for a conventional mortgage the traditional way. At the same time, it gives lots of time for you to accumulate a sizable down payment amount for you to secure a traditional mortgage in the future.
This a great opportunity for tenants who wanted to buy a house but still need to improve and meet the lenders' criteria for a conventional mortgage, and also this a good program for:
New to Canada
Increase the credit report
People who have declared bankruptcy or consumer proposal, or
Those who haven’t been able to save enough money for a good down payment
How Mortgage Brokers can help you in the Rent-to-Own Program?
The mortgage business goes further beyond lucrative results, it helps to materialize individual and family goals, both financial and quality of life. Mortgage Brokers provide personalized mortgage solutions and financial services to support those goals and make them a reality.
Mortgage Brokers, not only can find the best mortgage financing option among more than 60 lenders that we have in our portfolio, but we also advise you at no cost to you in finding solutions in case you are not ready to request mortgage financing according to the loan rules and criteria of each Financial Institution.
One of these solutions is the "Rent-to-Own program" that allows you to start living in your home, as well as build and improve your credit, income, and financial horizon in the medium term, to be eligible for a conventional mortgage at the end of the program.
The Rent-To-Own Program is designed to fulfill your dream of owning a house. This program allows you to move into your own home NOW before you can obtain financing or a mortgage.
The Rent-To-Own program bridges the gap and allows us time to work with you to repair your credit, pay off debts, be discharged from bankruptcy or proposal, and even build up a higher down payment.
"Rent to own (or lease to own—they are the same thing, just using different terminology) is a rental strategy with an option to purchase at the end of a predetermined period. In a rent-to-own scenario, the renter has a reason they’re unable to obtain financing at the moment—for example, bad credit or lack of a sufficient down payment. Yet, they want to make the transition to homeownership immediately, usually for personal or emotional reasons. The renters’ motivation could be anything from needing a bigger house for their expanding family to wanting a yard for their dogs, even simply wanting to feel the satisfaction of homeownership and all of the benefits that come with it. Typically, the tenants are looking to stop renting and finally move into a place they can call their own. They don’t want to continue bouncing from rental to rental and are looking to settle down once and for all. [...]
Rent to own is a great strategy when you’re helping renters become homeowners. It takes on a whole new meaning when you’re saving a family from losing their home. Such deals are quick and easy and extremely profitable, not to mention they help everyone involved in a truly powerful way."
Investing in Rent-to-Own Property, A Complete Guide for Canadian Real Estate Investors, by Loeffler, Mark. (págs. 9-10). Wiley. Versión Kindle.
This program is a temporary solution with a definitive exit and the following benefits:
You choose the house or apartment, the characteristics, and the area where you want to rent/purchase. The family salary dictates the amount of pre-approval to know the value of the home you can afford.
This program helps you save for the down payment that you will require to buy the home. The 3% that you leave in the deposit is part of this down payment.
With this program, you can save the down payment that you will require to buy your home.
Establish a fixed and pre-established purchase amount for the property at the end of the rental agreement. The appreciation of the real estate market in Ontario ranges between 11% and 19% per year. In the purchase option contracts of the RTO program, a more conservative average increase of 4% to 7% is set, depending on the area and the conditions of the contract. All the equity higher than what is set in the contract also belongs to the tenant/buyer.
Set a fixed and pre-established amount for the initial payment.
Advice by a Mortgage Broker at no cost to you to align your financial horizon with the criteria of Financial Institutions.
Stop renting at the beginning of the process your rent has a term that is linked to the home purchase agreement.
Pride of homeownership.
Build equity while living in your home.
Our team of dedicated real estate professionals will work with clients to qualify and find a home that fits their needs and criteria. Each program is created specifically for each client as we understand that many variables can affect credit and the ability to get a mortgage from the bank.
We would love to speak to you further about helping to set up a Rent-To-Own program that fits your needs specifically.
If you are interested in knowing how the program works, and the 7 steps of the complete process, we can have a phone call to talk about it.
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