Rent To Own Example
Canada Rent To Own Example
Our Rent To Own program runs all across Canada. Depending on your market the numbers may vary compared to the example below.
The Rent To Own process starts when you complete our short online application.
If you are “pre-qualified” with Rent To Own Canada, we will call you to discuss moving forward.
Once your full application is completed, we will let you know the maximum price of a home that you are approved for with Rent To Own Canada.
You let us know the specific location of the city/town that you are looking to purchase your future home in, and we will find the average increase in price year over year.
Let’s say the homes you are looking at are currently worth $300,000.
You have bruised credit and want to start saving so it would be best to do a three-year Rent To Own term, as it will give you time to repair your credit and allow you to qualify for a mortgage.
Let’s say home prices have increased by 3.9% each year for the last five years.
Therefore we use a 3.5% increase each year to determine the purchase price at the end of the Rent To Own Agreement. With respect to the example above, the $300,000 home that you moved into would have a final locked-in purchase price of $332,615.36 at the end of the three-year Rent To Own Agreement.
This purchase price is locked in at the start of the Rent To Own Agreement and will not change. You also have the opportunity to buy the house early, for this same price within the three-year Rent To Own term.
how Rent To Own will save you a larger down payment
When you first start the program you need a minimum down payment of 5% ($16,630.77) of the final Rent To Own purchase price.
This $16,630.77 goes towards the $332,615.36 purchase price at the end of the 3-year Rent To Own term.
During the three years, you will pay market rent (needed for mortgage qualifying at the end of the rent to own) as well as an option payment. The monthly option payment is recorded separately, and it as well as your initial Rent To Own down payment will go towards the purchase price of the home at the end of the Rent To Own.
To give our tenant-buyers the best opportunity to qualify for the mortgage at the end of the Rent To Own, they need to save at least 10% of the final price. In this example, 10% would be $33,261.54.
If you take $33,261.54 and subtract the down payment of $16,630.77 you are left with $16,630.77.
Since it’s a 3-year term we take $16,630.77 and divide by 36 months which leaves us with an option payment of approximately $461.96 per month.
By the end of the three years, you will have 10% equity in the value of the home, which will allow you to qualify much easier with a lender at the end of the Rent To Own.
If you have the means to save more, and your primary goal is to own your home, it is in your best interest to have 20% or more equity saved at the end of the Rent To Own Agreement.
At the completion of the Rent To Own, you have a mortgage with a bank, credit union, or lending institution. At this point, your monthly mortgage cost will most likely be lower than your monthly rent, and you won’t have to pay any more option payments. Leaving you as a homeowner and more money in your pocket at the end of the day.
Is Rent To Own For Everyone?
No. Rent To Own takes sacrifice. It does cost more than traditional renting, and it does require an initial down payment investment.
However, as with renting you will not have to be at the liberty of your landlord. You will have peace of mind knowing that you will be living at the same location for years to come. You have a predetermined purchase price and won’t be a victim of the rising real estate prices in Canada. Finally, you will create better financial security for you and your family by owning your own home.
If the problem you're trying to solve, is to stop renting and to become a homeowner, then Rent To Own is the solution you have been looking for.