Similar to the economical and housing crisis worldwide as an after effect of the COVID 19 pandemic, Canada’s housing market crashed leaving millions with an unfulfilled wish to own a home. With an aim to address the housing upheaval, Prime Minister Trudeau introduced the fairly new and untested housing model- the Rent to Own Program/Agreement.
The term Rent to own is rather self explanatory. To put it simply, Rent to Own programs are a formal agreement between the landlord or a rent to own company and the renter that allows the renter to fulfill a sum of the agreed down payment as part of the monthly rent costs. To put it broadly, we listed some features of the Rent to Own program:
- The landhold holds the property until the renter can manage qualifying for traditional mortgage
- Renter pays a small percentage of the down payment to affix his right to the property for the agreed period of time
- A fixed sum is paid by the renter as downpayment with the monthly rent
- The renter consents to the liabilities and penalties proposed in the contract
Types of Rent to Own Program and how they work
The Rent to Own agreement exists in two forms, the Lease Option and Rent Purchase.
Lease Option
In a lease option agreement, you will be obliged to deposit 1-5% of the down payment to secure the option of buying the home in future. The key term here is option. What we mean by this is, you shall have the legal right to either buy the home or be released from the agreement if you change your mind and may develop a liking towards another house property in the future. All this legal flexibility but it sure comes at a cost. The cost you would be paying is losing the down payment in case you decide not to buy the house, as the agreement you signed makes it non refundable.
Rent Purchase
On the other hand, the Rent Purchase agreement secures your right to buy the house at the end of the rental agreement after you pay an agreed deposit and consent to setting aside a sum for down payment along with the rent. However, you may not have the legal flexibility that you have with the lease option agreement to change your mind at the end of the rental contract. Pay attention as we tell you about the repercussions of not abiding by the contract clauses. Folks, in case you lose interest or are not able to buy the house due to personal issues, you would not only lose the deposit paid initially but also be liable to penalties.
It is imperative to know that contracts vary and may have clauses that you might need to pay extra attention to. We recommend you to hire a lawyer in legal matters such as this to avoid ending up in a bind and having to pay more than what you presumed.
Who offers Rent to Own Programs?
The Rent to own programs are offered by the rental companies that have limited inventory and price products or commodities higher than retail prices. If you are interested in the Rent-to-Own program, you may contact:
- Rent to own companies
- Car dealership
- Rent a Car services
- Landlords
- Real estate agents
Laws and disclosure requirements differ from state to state and city to city so be sure to consult a lawyer before you proceed to a decision of going through with the Rent to Own program. Before entertaining the renter rent to own program consultation, formally operating rent to own companies generally ask for the following documents:
- Proof of regular income
- Permanent address
- References
A rent-to-own company owner in the north of Toronto, Rachel Oliver has set a 20,000$ deposit amount for renters and has helped 600 families fast track their journey to home ownership. In addition, a monthly rent is calculated to let the renters know about the amount and time needed for them to achieve a 10% of the purchase price of the house. Oliver termed the Rent to Own program as “forced savings”, and mentioned that the property is sold in increments rather than the traditional buying and selling conducted with conventional mortgage.
What to expect with regular payments for Rent to own programs?
Rent to own companies price the product or property at 2-5 times higher than the retail price. While the regular rental payments may seem manageable, you must know the actual price of the property before signing the agreement so that you have a rough idea about your budget and affordability to buy the house in future. You must also let a lawyer accompany you to make you aware of your rights and liabilities.
