How It Works

Rent-to-Own Program

If you have a homeowner mindset and you are looking to build equity, use a smaller down payment, and build or rebuild your credit score, then a Rent-to-Own program is what you are looking for. This program was created with the purpose of helping out those people with poor credit to eventually become proud and established homeowners.

How Does Rent-to-Own Work?

Essentially, Alternativa will rent out the house similar to how a landlord would with an apartment. Potential homeowners can then rent the house, making regular payments. Each rental home comes with a particular rental agreement that the potential homeowner must adhere to if they want to remain living there. This contract is known as “option-to-purchase”. If the potential homeowner chooses the option-to-purchase, they’ll sign an agreement that states that they have the option, but not the obligation to buy the house when their rental term is over.

With most Rent-to-Own agreements, the potential homeowner will be required to pay what’s known as an “option fee”. This is a non-refundable, but an often negotiable deposit, which usually amounts to about 2% to 7% of the home’s final asking price. The option-to-purchase is a separate contract that gives the potential homeowner the right, but not the obligation to buy the house at the end of the rental period. If the potential homeowner doesn’t wish to go through with the option-to-purchase consideration, Alternativa might still let them rent the home.

The Rent

After the agreement has been confirmed, the potential homeowner will make regular payments, usually on a monthly basis, over several years (1-3-5 years is most common). The payments are divided into two parts, with one larger portion of each payment going toward the rental fee and the other going toward the down payment and eventual home equity. Once the rental agreement is over and the potential homeowner still wishes to buy the house, they will have hopefully paid off enough of the down payment and raised their credit score sufficiently to qualify for a regular CMHC (Canadian Mortgage and Housing Corporation) insured mortgage. If the potential homeowner’s don’t like the house or have any other reason not to buy it when their rental term ends, they can walk away from the deal.

The Final Asking Price

Once again, the terms of the option-to-purchase agreement will dictate what the new potential homeowner ends up paying for the home if and when they decide to buy it. The final asking price for the home will be agreed upon and locked in before the potential homeowner moves in.

Is a Rent-to-Own Program Right For You?

This program is only for those who are serious about owning a property and already have a homeowner mindset. The ideal client for the Rent-to-Own program is someone who:

1. Wants to work toward becoming a homeowner as soon as possible.
2. Takes pride in ownership of the home.
3. Understands that real estate is a great way to build wealth.
4. Has had trouble receiving financing or has been declined by a mortgage lender before.

The Advantages and Disadvantages

If you believe you’re a good candidate for the Rent-to-Own program, you should be aware of the advantages and disadvantages.

Advantages

With an option-to-purchase, the potential homeowner has the right to terminate their rental agreement at the end of their rental term. This means they can have a “test-run” with the house. If they don’t like the neighborhood, the contract terms, or the house itself, they don’t have to buy it.

The non-rent portion of the payments that the potential homeowner makes goes toward the down payment on the home. For those who cannot initially afford said down payment, they can both add to it gradually and have time to build up their finances.

Since the asking price is locked in, the potential homeowner will then pay that price for the home at the end of their contract, even if the real estate market fluctuates and the house rises in value.

Disadvantages

If the potential homeowner’s finances and credit score have not improved by the time their rental agreement expires, they may not receive the necessary financing to purchase the house.

Since the contract is an option-to-purchase, and the potential homeowner has paid for the option fee but does not purchase the house, their deposit will be lost.

Unlike an apartment, in Rent-to-Own cases, potential homeowner’s are responsible for all required repairs and maintenance. They also have to pay for homeowner’s association fees, property taxes, and insurance.

Bottom Line

The Rent-to-Own program gives you the ability to begin investing in owning a home today and avoiding the cash pit of rent. This program will help you to be more financially responsible, stay on track and go through the necessary steps to build the equity and credit rating required to qualify for a mortgage. The Rent-to-Own program will put you well on your way to becoming a homeowner in no time, and you also receive the added benefits of a stronger credit rating and real equity in your property.