Certain housing markets, like Toronto, are significantly more expensive than others. This makes it increasingly more difficult for people to afford homes in more in-demand markets, with some prices just not attainable for someone with a modest income. Since prices remain out of reach for many Canadians, alternative solutions to homeownership are becoming more common.

One of these different forms of finding housing is rent-to-own programs. These are starting to grow more and more in popularity across the GTA.

What is a Rent-To-Own Program?

When renting a home, condo, basement, apartment, etc, you likely feel that your money goes out the window instead of building home equity.

This is where the rent-to-own idea comes in. On a basic level, it is just like renting a home, except a portion of each month’s rent goes towards the purchase of the property! Thus you are paying to rent the property but also paying towards gaining ownership down the road.

With Rent To Own, there are two main types of agreements.

Option-to-Purchase: Upon ending the rental term, the tenant has the option to buy the property.

Lease Purchase: Once the rental term ends, the tenant will purchase the property. If they chose not to, there would be a penalty applied.

Rent-To-Own programs work just like renting a home, but you also grow rent credit that can help you purchase the home after the rental term lapses.

What Does It Include?

Often, the rent-to-own agreement will dictate the final purchase price of the property. This could be locked in or based on a value appraised at the end of the lease. 

Tenants will likely have to provide at least 2% of the agreed purchase price as a sort of down payment fee.

Tenants may wish to, or need to, make additional monthly payments towards the final purchase of the property.

Any maintenance and repair costs are the responsibility of the tenant and not the landlord.

Is there Demand for this Progam?

The government sees a demand in the market, particularly among the significant number of renters who wish to invest in real estate but lack the necessary initial funds. Several rent-to-own schemes around the nation will get more than $1 billion in funding thanks to federal government initiatives. Plus, if housing prices keep rising and more people are left figuring out how they can find suitable housing, a rent-to-own program sounds like a great solution to a hard problem.

Have Questions?

Buying a home in today’s market is not easy, with rising home prices, stagnant wages, and inflation. It makes it complicated when you want to enter the real estate market on your own or finally move out of your parent’s house. But, there are options available.

If you are looking for professional mortgage advice, or need more information, The Mills Team is ready to answer all of your mortgage and home ownership questions.