The somewhat unclear term “Rent-to-Own” probably needs an explanation.
Imagine this: you want to buy a property, but—as is often the case—you don’t have the money for a down payment (or you do, but it’s not enough).
Or your credit history and credit score, although steadily improving, still don’t qualify you right now for a large enough loan to buy a home.
Or maybe you want to buy, but you’re unsure if homeownership is right for you, whether the neighborhood suits you, whether the train will wake you up at night, and overall, you’d like to try living in the house for a bit to see if it fits your needs.
In all these cases—when you want to buy a home but can’t yet—you might want to consider the rent-to-own option, if it’s available, of course. And perhaps toast to our desires aligning with our capabilities (naturally, I mean with mineral water only).
As the name suggests, Rent-to-Own means renting with the option to buy. You begin living in “your” home without formally transferring ownership to your name and without getting a mortgage—an easier arrangement. In essence, you rent a house or apartment with the condition that after some time, you can (or will be required to) purchase it.
Usually, a portion of your monthly rent goes toward the future purchase. So, in a way, you’re gradually accumulating your down payment while already living in your “own” home.
What’s good about it?
Well, aside from the obvious “I’m living in a home I can’t yet afford to buy,” there are several additional benefits:
a) You can’t qualify for a mortgage on this home today, but you expect to improve your credit, job situation, etc. in the next few years.
b) You can lock in the price now, so any future increases won’t affect you.
c) A portion of each monthly payment is set aside as a future down payment for the home.
But we’ve been around the block—we know that everything in life is about balance. Rent-to-Own is no exception.
So, where’s the catch? — the impatient reader might ask. — It can’t be all good, right? There has to be a little detail that breaks the perfect picture, doesn’t there?
Alright, let’s talk about the drawbacks that usually go unmentioned
1. You’ll have to pay more than regular rent. I mean, did you think you’d just cover your down payment while the nominal homeowner pays the mortgage for you? That’s not how it works. You usually pay rent plus a bit extra, which is set aside as a down payment for the home you’re already living in.
2. If you change your mind about buying the home, you’ll lose the amount set aside. Job loss, failed mortgage approval, or simply deciding the neighborhood isn’t great—any of these could result in significant financial loss.
3. In a declining market, the future value of the property may be lower than the price you locked in. Uh-oh! You’ll be stuck buying at an inflated price (and there’s no guarantee the bank will approve a mortgage for that amount), or you’ll have to walk away from the deal and lose your saved-up down payment.
4. Living in your “own” home—even under Rent-to-Own—makes you responsible for all maintenance and repairs, large and small. In a regular rental, the landlord took care of this. Now? Welcome to homeownership!
Conclusions
Who might benefit from a Rent-to-Own arrangement?
* Newcomers to Canada without an established credit history.
* Those with a stable income but who still don’t have enough for a down payment.
* People who can’t get a mortgage today but are confident their situation will improve in a few years.
* When the market is rising, locking in the price now and buying later might be a smart move.
When is Rent-to-Own not the best option?
* If you’re unsure your financial situation (credit score, job, ability to get a mortgage) will improve significantly within a few years.
* If the market is falling and there’s a high chance the home’s value will be lower in the future.
* If the landlord is pushing too hard for the sale, and you’re not fully convinced yourself.
And the main takeaway: Rent-to-Own can sometimes be helpful, but it’s not a magic solution. The key is not to rush (haste is only good in—you know what), realistically assess your finances, and always read the fine print (preferably with a lawyer). Only then—sign.
If you’re considering this option, email me at serge@agent1.ca or call 416-305-6525. I’ll help you review the agreement and advise whether it’s the right fit for your situation. I also offer consultations and assistance with any real estate matters in Toronto and across Ontario.
Serge Skyba
Real Estate Sales Representative at Realty 7 Ltd, Brokerage
416 305 6525
