Learn more about rent-to-own homes and how it works.

Home prices in Canada are steadily on the rise, causing many people to re-think homeownership. From building a tiny home to moving across the country, more Canadians are seeking creative solutions to find a home within their budget.

Rent-to-own homes offer a unique path to homeownership that's growing in popularity. As the desire for rent-to-own properties increases, more landlords and real-estate companies are offering rent-to-own programs as an option for potential homebuyers. By removing the need for large down payments typically required in today's housing market, rent-to-own homes could help make the goal of owning a home more accessible. This is especially true for first time homebuyers, who are increasingly considering rent-to-own options.

How does a rent-to-own (or rent-to-buy) program work in Canada?

A rent-to-own agreement (sometimes referred to as a rent-to-buy agreement), is a contract between the renter(s) and the owner(s) of a property. Just like a traditional rental agreement, monthly payments are made to the property owner at a set price. However, unlike a typical rental contract, a portion of the monthly payments on rent-to-own homes go towards a down payment on the rental property, called rent credits, to help the would-be-buyer purchase the home at an agreed upon date in the future.

Currently there are no government rent-to-own programs in Canada, however, private companies are offering rent-to-own agreements to Canadians.

Is a rent-to-own agreement the same as a lease-to-own agreement?

A rent-to-own contract gives renters the right, but not the obligation, to buy the home they're renting at an agreed upon future date and price. Lease-to-own is similar to rent-to-own, however the tenant is required to purchase the home at the end of the agreement.

What makes rent-to-own properties popular?

Demand is growing for rent-to-home options in Canada – especially in provinces like Ontario, Alberta, and BC, where housing costs continue to increase. The monthly payments on a rent-to-own home are typically in line with rental rates for the area where the property is located. However, the savings over time through rent credits could give a larger number of people the chance to enter the housing market.

What does the payment structure look like for a rent-to-own contract?

While you don't need a huge down payment before moving into a rent-to-own home, you'll still need to pay some cash up-front. This fee – sometimes called an option deposit – is due at your move-in date and deducted from the purchase price if you decide to buy the home. Typically, a rent-to-own agreement ranges from 1 – 5 years, and the landlord can't sell the home to anyone else during that time. If you decide to buy the home at the end of the lease term, you'll need to pay the remainder of the down payment. 

For example, let's say you've agreed to buy a rent-to-own home in Canada for $495,000:

  • Your option to purchase deposit (2.5%) is: $12,375
  • The amount owing upon purchase of home is: $482,625
  • Down payment required (5%): $24,131
  • Monthly rent: $1,850
  • Monthly rent credit (Extra funds for future down payment): $740
  • Down payment saved after set term (i.e., 3-years): $26,640
  • Amount leftover after 5% down payment: $2,509

In this example, the tenant would save $26,640 for the down payment over the course of the three years they're renting the property. After putting 5% down, the remaining $2,509 could be used towards closing costs on the purchase of their new home. Keep in mind 5% is the minimum amount needed for a down payment in Canada, so in this case the homeowner would also have to purchase mortgage loan insurance. Most lenders don’t require mortgage loan insurance with a down payment of 20% or more.

Do I Need Insurance if I Rent-to-Own?

When you first move into your rent-to-own home, you're considered to be a renter and your landlord will likely require proof of active tenant insurance. Tenant insurance covers your belongings both inside and outside of your home and can provide other coverage benefits, like personal liability, additional living expenses and more. Once you own the property, you'll need home insurance to not only protect your belongings and provide liability coverage, but also insure the structure of your home and your property.

Is rent-to-own a good idea?

Like any home-buying process, this road to home ownership isn't without pros and cons.

The benefits of renting-to-own include:

  • Time to save for a down payment. Having a rent-to-own agreement gives the renter the opportunity to build up a down payment through rent credits that can be applied to the purchase of the home at an agreed upon future date.
  • Opportunity to address financial issues. Rent-to-own programs give homeowners more time to address any financial issues and meet savings goals while working towards purchasing a home at a set price. While renting-to-own, individuals have the potential to positively impact their credit score by making on-time rent payments.
  • Chance to try living in the home before buying. Rent-to-own agreements offer potential buyers the unique opportunity to live in a home before deciding to buy it.
  • Potential increase in property value. Should the property value increase during the lease period of the agreement, the renter-turned-owner can buy the property at the agreed upon lower rate, keeping the additional value of the home they contracted to buy.

The drawbacks of renting-to-own include:

  • Potential decrease in property value. If the value of the property you're renting-to-own decreases during the lease term, the renter is still responsible for buying the property at the higher, previously agreed upon price per their rent-to-own agreement.
  • Potential forfeit of rental credits. Should something happen that impacts the renter's ability to purchase the home at the end of the rental agreement, like a job loss or other financial hardship, they may need to leave the property, and lose the down payment credits that were part of the rent-to-own program.
  • Potential renovation restrictions. There may be restrictions on updates that can be made to the home during the lease term, and the would-be-buyer could be responsible for maintenance or upgrades during that time.

Is rent-to-own worth it?

If you'd like to own a home but have been struggling to come up with a massive down payment, you may want to consider renting-to-own. While the ability to save and build your credit could be helpful, it's important that you understand all the requirements of your agreement with the owner of the property before you enter into a formal contract. Once you've reviewed the terms – and your finances – you'll have a clear picture of whether rent-to-own could work for you.

Are you moving into a rent-to-own home? Find the tenant insurance plan that's right for you.

Share this article

The content on this page is for general information purposes only and does not constitute legal advice. Coverages described herein may be subject to additional eligibility criteria, limitations and exclusions. In the event you make a claim, potential indemnification is also subject to the receivability of the claim and the type of coverage you bought.

In the case of conflict between the content on this page and your policy wordings, your policy wordings shall take precedence. Please speak to an Advisor or consult your policy wordings for further details.