With a rent-to-own arrangement, you can rent a home and also have the option to purchase the home in the future. You can enter a rent-to-own arrangement with individual landlords or rent-to-own companies. Similar to any rental agreement, you will make monthly rent payments to the landlord or rent-to-own company; however, a portion of the payments will be saved up and will eventually be applied towards the downpayment of the home at the time of purchase.
Rent-to-own can be an option to consider for interested buyers who don’t have enough downpayment saved up right now. Buyers who were refused a mortgage due to bad credit scores may also get into a rent-to-own arrangement and work on repairing their credit scores during the lease period. In fact, some rent-to-own companies also offer credit repair programs for such buyers so that they can be approved for a mortgage at the end of the lease period.
There are several rent-to-own companies operating in major cities of Alberta, including Calgary and Edmonton. Very few rent-to-own companies operate nationally, with most companies operating in a particular city or region. A simple search on the internet, with prompts such as ‘rent-to-own homes near me’ or ‘Calgary rent to own,’ can help you find rent-to-own companies operating near you. Some rent-to-own companies operating in Alberta are listed below:
|Rent to Own Calgary
|Real Suite Assets Inc.
|Peak Housing Solutions
|ASAP Housing Solutions
|Rent to Own Edmonton
|QD Home Quest
Researching a rent-to-own company thoroughly before entering into an agreement with them is very important to protect yourself from rent-to-own scams. Many reputed rent-to-own companies are a part of the Canadian Association of Rent to Own Professionals (CAROP), which is a professional association of rent-to-own professionals. It should also be noted that there are no rent-to-own programs offered directly by the Canadian government.
To get the option to purchase the rental home, the rent-to-owner must pay an upfront non-refundable fee to the landlord. This fee, known as the ‘option fee’ or the downpayment, is usually 1% to 5% of the agreed-upon purchase price of the home. However, depending on the tenant’s financial situation, they may have to pay a higher option fee. If you end up purchasing the home, the option fee is applied to the purchase price of the home; however, you will lose this deposit.
Rent credits are the portion of the monthly rent payment that is set aside for the downpayment of the home at the time of purchase. Rent credits often form 25% or more of the monthly payment but can be more or less based on the unique case.
The amount of option fees and rent credits can be higher depending on the individual case. For example, if the tenant has declared bankruptcy and is looking to repair their credit, the rent-to-own company may ask them to pay an upfront fee of 10% and charge higher rent credits to save up at least 20% downpayment through the option fee and rent credits. Doing this can improve the chances of their mortgage approval at the end of the rent-to-own program.
There are two kinds of rent-to-own agreements possible,
Suppose you want to buy a home listed on Calgary’s housing market for $380,000 but don’t have enough downpayment saved. You decide to enter a rent-to-own agreement with a rent-to-own company for two years. Then, the agreement details would look like this -
At the end of the two years, you will have $12,330 from the initial downpayment and $12,000 from the rent credits to apply toward the purchase price of the home, and you will have to get a mortgage for the remaining $386,670. If you choose not to buy, you will lose the deposit and the rent credits.
Generally speaking, the landlord is responsible for the maintenance and repairs to the home, just as in any rental agreement. However, some landlords may require the tenants to take the responsibility of maintaining the property. If so, the landlord will have to put that in the contract. You should review the contract carefully for such information to be aware of your responsibilities. Some landlords expect the tenant to take up maintenance tasks, such as lawn mowing and snow removal, while they take responsibility for major repairs to the home, such as fixing a leaky roof.
An alternative to rent-to-own programs available in Canada is co-ownership programs, such as Ourboro. Such programs contribute toward the downpayment for the purchase of the home. The company will be the co-owner of the home along with you and will get their share based on their equity whenever you choose to sell the property.
If you don’t have enough downpayment saved for the purchase of a home, you can check if you qualify for any down payment assistance programs available in your province. Downpayment assistance programs are offered by federal, provincial and municipal governments, with a high focus on first-time home buyers.
If you are thinking of entering a rent-to-own arrangement because you were refused a mortgage by a bank, you can look at alternative lenders who specialize in bad credit mortgages. You might be approved for a mortgage at a high-interest rate, but you can start owning the home right away. By making on-time mortgage payments, you can gradually improve your credit score and then renew the mortgage at a lower interest rate at the end of the term.