Rent-to-own programs enable borrowers to build equity in a specific property as tenants with an option to buy the property within an established timeframe – typically between one and five years. As with any program, it’s important to understand how it works before determining if it’s right for you.

Prime Minister Justin Trudeau recently announced a $200 million investment in a five-year rent-to-own program under the Affordable Housing Innovation Fund administered by Canada Mortgage and Housing Corporation (CMHC). 

And, while rent-to-own can help create homeowners, it’s not for everyone.  

When does using a rent-to-own program make sense?

If someone requires a bit more time to come up with a down payment but wants to move into a home sooner rather than later and begin building equity, a rent-to-own program could be useful. Under this type of arrangement, a portion of your monthly rent payments will be set aside – called rent credits – to be put towards the purchase of the home as an eventual down payment.

On the flip side, for those looking into this type of program because a bad credit rating is preventing you from qualifying for a mortgage, your best course of action on the road to homeownership is to address credit problems and then look at purchase options. 

Rent-to-own programs may also require a down payment, not unlike a typical home purchase. For instance, some companies offering rent-to-own programs require 2-10% of the initial home price as a down payment to start the program to ensure borrowers are able to qualify for a mortgage and purchase the property once the rent-to-own agreement term ends. 

You can either enter into an agreement directly with your landlord or through a rent-to-own company. You’re not always obligated to purchase the home under a rent-to-own program (depending on your lease agreement), but if you decide not to follow through with the purchase, you’ll lose the rent credits that have built up while you’ve been paying rent on the property. 

As always, it’s important to explore all homeownership avenues before rushing into anything, including a rent-to-own program.

Have questions about rent-to-own programs or your mortgage in general? Answers are a call or email away!