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

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.

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.

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.

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.

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.

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.