For many in Canada, the dream of homeownership can be a difficult one to achieve – particularly if your credit score isn’t stellar. Rent to own can be a viable solution, allowing the tenant/buyer to live in a home that they love while they put away money for the down payment. The landlord/seller collects rent and after a set time period, they have a good chance of being able to sell the home to the tenant/buyer for a tidy profit. Ideally in this situation, everyone should come out a winner.
Unfortunately, rent to own has gotten some bad press in the past because like every other type of business transaction, it does have the potential to attract some scam artists. The good news is there are ways to protect yourself.
Here are three tips for anyone who is considering entering a rent to own agreement in Canada.
- Money toward the down payment should be held in trust. In a typical rent to own agreement, a portion of the tenant/buyer’s rent is meant to be put toward the down payment. Similar to a regular real estate deal, this portion should be held in trust rather than go directly to the landlord/buyer or a third party. This protects the tenant/buyer from losing the money should they choose not to purchase the home and it also protects the landlord/seller from any appearance of wrongdoing.
- Do your homework. If you are the tenant/buyer, make sure that the person you are entering the agreement with actually owns the property and that there are no liens against it. This can be done at the county registry for a small fee. You can also find out how much is owing on the mortgage.
- Finally, you should make sure that the lease and option agreement is registered against the title. In order to do this, it is likely that you will have to pay the land transfer tax, but this should only be about $100 or so and it will protect you against the landlord/seller offering others deals on the property.
Remember, a rent to own agreement can be a great solution for those with poor credit or an insufficient down payment to get into a home – and in most cases both parties enter the agreement in good faith. Nevertheless, in any business transaction, it is always best to do your due diligence and make sure you are protected.
If you are interested in pursuing a rent to own agreement and would like to discuss it with a mortgage broker, call AKAL Mortgages today.
When we say YES! We stand behind our promise.®™