What Is A Rent-To-Own Program In Ontario?
A rent-to-own program allows those in Ontario to rent a home with the option to buy. These programs offer homebuyers the chance to be proactive in their purchasing endeavors. Despite any obstacles that may have prevented them from buying the conventional way.
Poor credit and insufficient funds don’t have to be hurdles that prevent you from finally having your name on the property title.
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 or landlord. Just like you would as a tenant. However, with a rent-to-own program, a portion of the rent you pay goes toward your down payment, 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 were your own.
Two Rent-To-Own Options In Ontario
There are two different rent-to-own agreements you may choose from, including the following:
Lease-Option Agreement
Also referred to as an “option to purchase” agreement, a lease-option agreement gives you the option to buy the property at a future date. However, you’re not required to make the purchase.
This option gives you the flexibility to make your decision of whether or not to buy the home when the agreement comes to an end. You will not be penalized if you choose not to purchase the property at the end of the lease.
Lease-Purchase Agreement
Unlike the lease-option agreement, a lease-purchase agreement does not give you the flexibility to choose whether or not to buy the home. Instead, you are obligated to go through with a purchase by the end of the lease agreement. Otherwise, you may be penalized.
Advantages Of A Rent-To-Own In Ontario
Rent-to-own programs in Ontario can provide you with several advantages, including:
You Can Save For A Down Payment
One of the biggest perks of a rent-to-own agreement is that you don’t need to qualify for conventional financing. This allows you to get into the real estate market sooner and an opportunity to build equity.
Lock In A Purchase Price
Generally speaking, the value of real estate increases over time. With a rent-to-own agreement, you can lock in at an agreed-upon price today. If the value of the home exceeds this amount by the end of the lease, you’ll be able to buy the home for a lower price than what the future market dictates. However, keep in mind that this feature is a double-edged sword. There could be a chance that the value of the home may be lower in the future than what you agreed to pay for it by the time your lease expires. If it’s appraised at a lower value by the lender, you might also need to put more down on the property.
Disadvantages Of Rent-To-Own In Ontario
It’s important to understand that, in addition to the obvious advantages of a rent-to-own agreement, there are also some pitfalls, including the following:
- You Can Lose Your Money – If you don’t end up buying the home, you would lose all the money that would have gone toward the down payment and therefore the equity in the property.
- Locked In Price – If the value of the property falls by the point when it’s time to exercise the right to purchase, you may not be able to renegotiate a lower price;
- Missed Payments Can Make The Deal Fall Through – If you don’t pay your rent on time, you could lose your right to purchase;
- Less Control Over The Property – You don’t have as much control over the property since it’s not yours. You may not be able to make any changes to it while living there before you buy it. Moreover, there may be issues with the house that you’re unaware of until you buy it.
Rent-To-Own Scams In Ontario
Unfortunately, some consumers have fallen victim to rent-to-own scams in Ontario. One of the most common scams involves fraudsters who claim to be the owner of a rent-to-own property when they’re not. These people will advertise a property they don’t own in hopes of collecting fees upfront from the renter, then disappearing with the money.
To protect yourself from being scammed, make sure to familiarize yourself with the following red flags:
- The home is in foreclosure. If the property is in the process of foreclosure, then the title of the property isn’t really in the name of the owner any longer. At this point, the lender will have repossessed the property and likely taken steps to sell it. At this point, it is not available for a rent-to-own arrangement.
- The home is in worse shape than expected. If a property needs some TLC, the listing will disclose this information. But if you visit the property and see that it’s in much worse condition than advertised, this is a big red flag.
- The home is priced far above fair market value. Even if the home is legitimately owned by the person claiming to be the owner. They could scam you into locking in at an agreed-upon purchase price that is way more than what the fair market value would otherwise dictate. If you choose to buy the home once your lease ends, you’ll be paying an unfairly inflated price and risk owing more on your mortgage than the home is worth.
Be sure to scope out the program in great detail and get sound advice before signing a rent-to-own contract.