rent to own program

What are Rent-to-Own Programs and How Do They Help?

In the face of rising home prices and housing affordability challenges, the federal government has announced initiatives to assist Canadians in achieving homeownership.

Support for innovative and new rent-to-own programs, which are aimed to make homeownership more financially achievable for Canadians who would otherwise be priced out of the present real estate market, is one of the steps being taken.

Let’s go a little deeper into the support the Canadian government is providing for rent-to-own programs in their budget for 2022 Canada.


What is the New Rent to Own Program? 

You will sign into a rent-to-own agreement with either your landlord or a rent-to-own company. You’ll be renting a home from your landlord or a rent-to-own firm, with a percentage of your rent going toward a down payment on the house when you eventually buy it. This is referred to as a “rent credit.” 

rent to own program

You will have the option to purchase the property during your lease or after it expires, but you will not be forced to do so. This can last anywhere from one to five years. If you decide not to buy the house, you will forfeit the rent credit you have accrued.

A rent-to-own contract obligates your landlord to sell the property to you. During the option period of your lease, your landlord is prohibited from selling the property to anybody else. The option period refers to the time when you have the option to buy the house.


How Do the New Rent to Own Programs Work?

A rental agreement and a rent-to-own agreement are both required when renting to own a home. The addition of a rent-to-own arrangement, which can be either a lease-option deal or a lease-purchase agreement, distinguishes rent-to-own from conventional rentals.

  • Lease-Option Agreement: Also known as the option to purchase agreements, you are given the option to purchase the home in the future. This means you can choose to quit your lease early without incurring any additional fees.
  • Lease-Purchase Agreement: A lease-purchase agreement states that you will buy the house at the end of your lease. Failure to acquire the home, whether due to an inability to qualify for a mortgage or a change of heart, may result in penalties.

Regardless of whether you sign a lease-option or a lease-purchase arrangement, a portion of your monthly rent payments will be accumulated and eventually applied to the house’s principal. These are referred to as rent credits. If you do not buy the house, you will forfeit the rent credits you have paid. Your contract will also include stipulations such as the home’s purchasing price.


Why Choose Rent-to-Own?

Rent-to-own homes are an excellent alternative for renters who want to save money for a home but don’t want their monthly rent payments to go to waste. It could be because the renter is unable to afford a home at the moment, but anticipates being able to do so in a few years. It could also be owing to their low income or poor credit score, which makes them more likely to be denied a mortgage.

The rent-to-own program enables renters to save money in two ways: directly through rent credits that can be used to purchase a home in the future, and indirectly by being provided with more time. 

Making on-time rent payments will also help renters improve their credit scores, allowing them to obtain the required credit score for a mortgage. This could improve your chances of getting a mortgage or provide you access to better mortgage rates. You can also use a rent vs. buy calculator to see which option is best for your budget.

When compared to buying a house outright, rent-to-own has some limitations. Because the property is still owned by the landlord, you must adhere to his or her restrictions. If you break your lease, such as owning dogs when your landlord doesn’t allow them, your right to purchase agreement may become null and void, which means you’ll have to start over.


How Does the Government Support the New Rent-to-Own Project?

Many Canadians rent because they cannot afford the down payment required to obtain a mortgage. With property prices soaring in recent years, many renters who hope to buy a home one day are finding it increasingly difficult to achieve their goal of homeownership.

The new rent-to-own programs can assist in bridging the gap between renting and buying a home. These arrangements allow Canadians to live in their homes while contributing a percentage of their rent to a down payment that can be used to purchase the home at a later date.

While rent-to-own programs are not new in Canada, the government is working to extend them across the country. The federal budget proposal for 2022 recommends allocating $200 million to the present Affordable Housing Innovation Fund. One hundred million dollars will be used to help non-profits, developers, co-ops, and rent-to-own firms build rent-to-own buildings.

This will enhance housing supply, make housing more affordable, and provide Canadians more opportunities to become homeowners.


What is the Affordable Housing Innovation Fund?

The Affordable Housing Innovation Fund was created to assist in the development of new housing in Canada. It includes $200 million in funding for this project, as well as funding approaches and new construction techniques in the affordable housing industry.

The Affordable Housing Innovation Fund will specifically:

  • Create communities that are accessible to Canadians.
  • Encourage the development of strategies for affordable housing.
  • Assist in reducing homelessness.

Housing Programs Offered by the Government

Any of the following are examples of acceptable rent-to-own projects:

  • Repairing rental properties for use in rent-to-own programs
  • Innovative financing models which make owning a home more affordable for Canadians
  • Programming that assists rent-to-own participants in preparing to purchase a home

New Rent to Own Program

If re-elected, the Liberal government has also promised to create a new rent-to-own program. The new rent-to-own program is founded on three ideas to help renters prepare for homeownership while they are still renting:

  • To help tenants in saving for a down payment, landlords must charge lower-than-market rental rates.
  • Landlords must commit to a 5-year term of ownership.
  • To protect future homeowners, precautions must be taken.

Every dollar paid in rent goes toward the property owner’s mortgage in a standard renting agreement. When tenants pay rent, they make no contribution to their own equity. Rent-to-own programs, however, allow Canadians to put a percentage of their rent toward a down payment.


Important: Equity Based Mortgage Lender in Canada

Budget for 2022 in Canada with New Rent-to-Home Programs

Rent-to-own programs can be an excellent option for renters to eventually purchase a property. However, these projects are not always available. Through its budget, the federal government plans to extend these types of programs, making it easier for Canadians to enter the home market.

Rent-to-own properties can be found all over Canada, including several in Ontario, British Columbia, Alberta, and Quebec. Finding a rent-to-own home near you is as easy as contacting a landlord for a property you like and negotiating a rent-to-own deal. In pricey areas like Toronto, Vancouver, and Mississauga, rent-to-own properties might make it easier for first-time homebuyers to buy a home.

Have trouble navigating the new rent-to-own program? Trying to budget for 2022 in Canada? Contact us at Freedom Capital today to learn how we can be of assistance!


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