Rent to Own a Home in Ontario: How It Works and the Risks

How a rent-to-own deal works

A rent-to-own agreement joins a lease with a purchase deal. You pay an upfront option fee, then monthly rent that is usually higher than market rent. Part of the extra may be credited toward your down payment. At the end of the term you buy the home at a price agreed at the start, using a mortgage you arrange yourself.

There are two common types. A lease-option gives you the right to buy but not the duty, so if you walk away you usually lose the option fee and the rent credits. A lease-purchase commits you to buy, and backing out can mean legal and financial penalties.

There is no standard Ontario rent-to-own contract. Each deal is written by the parties, so the terms vary widely.

The risks to understand before you sign

Have a real estate lawyer review the agreement before you sign or pay anything. Ask how your option and credits are protected if the seller sells, defaults or dies.

• You may not qualify for a mortgage when the term ends. Lenders apply the stress test then, not now.
• If you don't buy, the option fee and rent credits are usually lost.
• The purchase price is fixed at the start. If values fall, you may be paying more than the home is worth.
• The seller still owns the home. If the seller stops paying their mortgage or sells, your rights depend on the contract and how it was registered.
• Repairs, property tax and insurance may be shifted to you even though you don't own the home yet.
• Some offers are aimed at people with weak credit and price that risk into high fees.

Are you a tenant during a rent-to-own deal?

Whether Ontario's Residential Tenancies Act protects the rental part depends on how the agreement is written. Don't assume the usual tenant protections apply, or that they don't. A lawyer can tell you which rules apply to your contract.

For an ordinary tenancy, the Act limits the rent deposit to one month's rent and allows a rent increase only once every 12 months with 90 days' notice.

• Renting on Summitly →

Alternative: rent and save in an FHSA

A First Home Savings Account lets eligible first-time buyers save up to $8,000 a year, to $40,000 in total. Contributions are tax-deductible, and qualifying withdrawals for a first home are tax-free. Unlike an option fee, the money stays yours if your plans change.

You can also use the RRSP Home Buyers' Plan to withdraw up to $60,000 for a first home.

With CMHC insurance the minimum down payment is 5% of the first $500,000, 10% of the portion from $500,000 up to $1.5 million, and 20% on homes priced at $1.5 million or more.

• First-time home buyer guide →
• Homes for rent →

Alternative: compare renting and buying

Compare the full monthly cost of owning (mortgage at today's rates, property tax, insurance, maintenance and condo fees) with your rent and what you could save. Our mortgage calculator and closing-costs page help you build the numbers.

If you could qualify for a mortgage today with a smaller home or a different area, buying directly may cost less than paying a rent-to-own premium for a few years.

• Mortgage calculator →
• Closing costs in Ontario →
• Get pre-qualified →

What Summitly does and doesn't do

Summitly doesn't offer rent-to-own contracts or buy homes to rent back. We help people rent, and we help people buy with a regular mortgage when they are ready.

If you are renting now and want to buy later, we can help you find a rental, set up listing alerts and talk through the steps to buying.

• Newcomer's guide to buying or renting →
• Buy a home →