Rent-To-Own Frequently Asked Questions

Rent-to-Own Frequently Asked Questions

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1) What does “rent to own” or “lease to own” mean and how does it work?

With a “rent to own” or “lease to own” program, the Buyer and Seller of a home agree to a contract where the Buyer pays a deposit at the beginning of the contract and then lives in the home while paying monthly payments for the duration of the contract. At the end of the contract, the Buyer then has the option to purchase the home. A portion of each monthly payment goes towards the final purchase of the home and the Buyer has no need for a mortgage until the end of the contract, at which time they buy the Seller out.

The average length of a lease-to-own contract is typically somewhere between 2-3 years, although it can vary. The option consideration fee is generally between $5,000 to $20,000.

The Seller cannot make any changes or opt out of the agreement for the duration of the contract. However, as a Buyer, you can buy the home before the end of the agreement and pay the Seller out, or you can sell the contract to another Buyer.

2) Can I choose any home I want?

Absolutely! We want to help you find a home that you really love and we’ll work with you to make it happen. Our only note on that is that we want to help you find a home in an area where property values are appreciating, in a good neighbourhood, with good schools. The home must also be in good condition, which needs to be verified by a professional home inspector prior to signing the agreement. Keep in mind that you will have to qualify for a new mortgage when you complete the purchase at the end of your contract, so the home also needs to fit within your financial capabilities to buy it.

3) When is the purchase price of the home set?

The purchase price, along with your monthly payments and the length of the agreement, is set before you move into the home.

4) How much of a deposit do I need?

We’ll work with you to figure out the best deposit option for you, based on the funds you have available.

5) What if I don’t have great credit?

A rent-to-own home can be a great option for people that traditionally would not be able to purchase a home due to credit issues.

One of our team members is a mortgage broker, familiar with common credit issues. He will stay in touch with you periodically throughout the term of the contract to give you advice and guidance, helping you get your credit rating back to where it belongs.

Although there are no guarantees, we’ll do our best to come up with a solution to help you. We just ask that you’re honest with us about your financial situation from the beginning.

6) What if I’m self employed?

No problem. While processing your application, we’ll take into account that your income may not always be guaranteed and work with you to figure out the available options.

7) What if I can’t afford the rent payments?

The cost of your monthly payments are about the same as a new mortgage would be, including tax and insurance. If this is too steep, you could choose to purchase a home with a rental unit that would offset your monthly costs. For example, if your monthly payments equal $2300 and you rent out the unit for $900 per month, you are only responsible for the remaining $1400 per month. Note that the actual figures will depend on the home and market rents in the area.

8) Who is responsible for the upkeep of the property?

In your rent to own home, you’re responsible for the maintenance of the property. Since you’re planning to purchase the home at the end of the rental agreement, it’s in your best interest to take good care of it. Make sure to budget for ongoing maintenance when working out your payment plan.

9) What if I can’t make my monthly payment?

When you sign on to the rent-to-own program, you are legally required to meet the terms and conditions of the agreement, which includes paying the monthly amount on time. If you are unable to do so, you will be considered to be in default under the terms and conditions of the contract and we may need to begin legal proceedings to recover and secure our interests in the property. If this happens, you may lose your equitable interest in the property and may also be responsible for any legal costs incurred by us due to the default. We don’t want you to have to go through any of that, so it’s important that you understand your responsibilities and obligations prior to signing the contract.

10) What about condo fees, insurance and property tax?

While you are renting the property, we handle the property taxes and insurance, as they will be built into the rent. If you are on a multi-year plan, you will be responsible for increases in taxes and condo fees. As is typical while renting, you will need to purchase your own resident insurance policy to cover your own posessions in the home and you are responsible for utilities and maintenance.

11) Is the purchase price of the home negotiable?

Once the agreement is made, the purchase price of the home is fixed and doesn’t change. So, even if the value of the property goes higher than expected, you still get to buy the house for the amount decided upon when you made the agreement.

12) What if I don’t want to or am unable to buy at the end of the agreement?

Although we aim to make the lease agreement work out so you can feasibly purchase your home at the end of the term, it’s possible that you may not be ready at that time. If this is the case, you have a few options.

  1. If you need more time, we may be able to extend the contract.
  2. If you need help arranging financing, we may be able to help you.

We really want to help you get that home of your dreams, but if the first two options just won’t work, you also have the option to walk away from the house at the end of the agreement. However, the money put towards your option consideration fee is non-refundable. If you feel it’s likely that you won’t be able to purchase the home at the end of the agreement, then maybe a rent-to-own program isn’t the best option for you.

13) Why would I rent to own instead of waiting until I can get a mortgage?

That decision is up to you and we encourage you to do whatever works best for you and your financial situation. We’ve found that many of our clients got stuck in the endless cycle of renting. However, through our rent-to-own program, you automatically save towards the purchase of your home.

Another advantage of our rent-to-own program is that we’ll work with you to better your financial situation, making it easier for you to secure that mortgage when you are ready. Throughout the length of your contract term, we will help you develop a plan to improve your credit rating. For example, we may take a look at your employment, income, outstanding credit, the possibility of building a larger down payment, or even the idea of applying for an RRSP loan to help establish credit and take advantage of tax benefits.

14) How long will my rent-to-own contract last?

Typical rent-to-own agreements are set for between 1 and 5 years; however, the agreements are structured so that you can purchase the home before the end of the term if you’re able.

15) I’ve never heard of this type of home buying before – is it legal?

Absolutely. Over the last 10 years, the rent-to-own home purchasing option has become quite popular for residential real estate and is used across North America. CornerstoneSelect.ca is part of a network of real estate professionals that specialize in rent-to-own agreements.

16) How is a rent-to-own monthly payment calculated?

The monthly payments for a rent-to-own property are partly based on the costs of the home, including:

  • the existing mortgage on the home (principal, interest, and insurance),
  • the property tax,
  • and, condo fees.

We also take a look at the market economic rent and the mortgage cost structure. Typically the monthly payments are pretty close to the price of rent for a similar home. However, sometimes it can be cheaper if the existing mortgage is a lot lower than the comparable market rent.

You always have the option to pay over and above the monthly payment amount, in which case the extra money goes directly towards your purchase price fund.

17) Does it help me to pay larger monthly payments?

Yes. When you pay more than the “carrying cost” of the home, the additional money goes towards your purchase price fund, or your equity. The more equity you have saved up, the easier it is to get a mortgage at preferred interest rates.

18) Are there different ways to pay the deposit?

Yes. The beauty of our program is that we’re much more flexible on payment options than traditional lending institutions. For example, we will accept borrowed funds, so if you have a friend or relative that will give you a loan, you can use it for your deposit. Also, if you have RRSPs, you may be able to use those savings without penalty.

19) What happens to our initial deposit and down payment credits if we can’t buy at the end of the term?

We really want to help you get the home you love and we’ll work with you to examine all possibilities for making it happen. Our mortgage specialist works with numerous banks, life insurance lenders, trust companies, credit unions, and private investors.

If, after reviewing all options, you are still unable to purchase the home, you will not be entitled to your monthly down payment savings and you may lose your deposit as well. On a side note, there is some flexibility when we are creating the contract and we may be able to include a clause that would allow for a refund of your initial deposit in the event of the deal falling through.

20) Can I pay a lump sum?

Yes. If you want to make additional or larger payments at any time, there is no penalty to do so. Extra payments go directly towards your purchase price fund.

21) Are your contracts legal?

Yes. For our rent-to-own contracts, we use standard real estate contracts similar to what you would use when buying a home with a typical realtor. The main difference between the two is that the completion date is at the end of the contract term, so 2-5 years later than the average 30-60 days.

22) Can I buy the property before the end of my contract term?

Absolutely! At any time during your contract, you can exercise your option to purchase and take ownership of the property. Whether you are suddenly able to qualify for a mortgage, or you receive an unexpected inheritance or lottery prize, you can make your home officially yours at any time.

23) I want to rent to own a home. How do I get started?

The best way to get started is to complete our online application form . Once your form is submitted, we’ll contact you to discuss the next step!