If you are struggling to come up with the cash for a down payment or you face barriers to homeownership such as bad credit, debt, or money management issues, you may be tempted to enter into a rent-to-own plan to buy a home.
Rent-to-own arrangements – also known as lease-to-own and lease option plans – are legal in BC and can be an effective path to home ownership for some buyers, but they have risks. Before you enter into a rent-to-own plan, make sure you have enough information to make a well-informed decision about whether rent-to-own is right for you:
About Rent-to-Own Plans
In a typical rent-to-own plan, the buyer and seller sign an agreement giving the buyer the right, for a fee, to purchase the property at the end of a set term, for an agreed-upon price.
The buyer pays rent to the seller, plus a monthly installment towards the down payment. At the end of the contract term, if the buyer qualifies for a mortgage for the remaining balance, the transaction closes.
Unfortunately, rent-to-own plans don’t always live up to expectations.
Understand the Finances
Before entering a rent-to-own agreement, consider:
- Is the rent charged by the seller substantially higher than the “going rate” for the area?
- What will happen if you are unable to keep up with the payment schedule?
- Is the ultimate purchase price reasonable?
If you have to walk away from the deal, you will have paid a fee – and a premium on rent for several years – with nothing to show at the end. Before signing, consider whether you can afford this risk.
Understand the Contract
Because rent-to-own agreements can be complicated, it is recommended that you seek independent legal advice before signing. A lawyer can help you to negotiate the terms of the agreement, and identify potential issues, such as:
- Are the contract terms flexible?
- Are maintenance fees included?
- What happens if your rent is late?
- Do any of the terms of the agreement raise “red flags”?
If you feel that a real estate licensee representing you has not acted in your best interests, or may have otherwise contravened the Real Estate Services Act, contact the Real Estate Council of BC promptly: [email protected] | 1-877-683-9664
