Moving and Address Change Guides » How does the Rent to Buy scheme work?

How does the Rent to Buy scheme work?

When a seller advertises that he will consider doing a rent-to-own deal, he will be looking for someone to lease the house with two contracts.

Quite simply, buying a home the traditional way means putting a large chunk of cash down, getting a loan for the balance (mortgage), and paying off that balance over thirty years. The three biggest requirements of buying a home traditionally include:

  1. Having a large down payment
  2. Having good credit, and
  3. Having a steady source of high monthly income

If you lack the resources to buy a home the traditional way or perhaps need time to repair your credit, you may want to consider purchasing a home through a rent-to-own program.


When a seller advertises that he will consider doing a rent-to-own deal, he will be looking for someone to lease the house with two contracts. One contract will be a regular lease contract, and the other will deal with the purchase part of the deal. This contract will be for a period of time that is agreeable to both the seller and the buyer, usually anywhere from one year to three years. Many people think that the seller will simply set aside some of the rental money as a down payment contribution, but this is not exactly the case. The buyer will have to pay the regular amount of rent, and in addition they will have to pay a monthly installment that will be credited towards the down payment.


Example


Here is an example of how the seller may calculate your monthly contribution towards the down payment:


Say the purchase price is $200,000, you have agreed to a 2-year term, and you have already paid $5000 towards the down payment. In order for you to save up enough money for a 5% down payment in 2 years, you will calculate five percent of $200,000 and divide that by the 24-month length of the contract. So, in this case, you will need to save up $10,000, but since you've already paid $5000, your monthly contribution is $208.33. Keep in mind that this will be in addition to your rent payment. If the buyer decides to walk away from the deal, they will lose their deposit money, as well as any money paid towards the down payment. At the end of the contract, you must be able to qualify for a mortgage for the remaining balance.


Not every seller will structure the rent-to-own in the same way, but as in any real estate deal, you can always try to negotiate the terms that are not satisfactory to you. It is very important that you get independent legal advice for any contract that you sign.


For some people who need time to repair their credit score or are unable to save up for a down payment any other way, this can be a great way to eventually purchase your own home. You must be very sure that this particular real estate deal is of benefit to you, and that you can afford to take the risk of not being able to finally get it.

Rentals Tips in Canada

In general, your rent payment and household-related expenses should not be higher than 30% of your gross household income. Your gross household income is all income you receive before taxes and deductions. For example, if your gross pay is $4,000 a month, try to limit your housing costs to $1,200 a month or less.

Starting a Tenancy in B.C

Before renting a property, landlords and tenants should be familiar with the rules and regulations that govern how residential properties or units are rented in B.C.

To-do list before you move

When you are going to finally move to a new home you better plan this change beforehand.

What are your rights if your rent goes up?

When can a landlord increase the rent and what is the maximum allowable amount?

How should you pay your rental deposit?

A security deposit – often referred to as a “damage deposit” – is money that a landlord collects at the start of a tenancy and holds until the end of the tenancy.
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