You are probably already paying rent to a landlord.
So the idea of putting those same monthly payments toward a down payment instead of someone else’s mortgage sounds like a dream path to homeownership. That’s the promise behind rent-to-own agreements.
Rent-to-own can be a helpful stepping stone for some buyers however, they’re not always as good as they sound. There are critical details to understand and pitfalls to avoid, especially if the contract is structured to benefit the developer or private investor more than you.
In this article, we break down everything you need to know about rent-to-own. How it works, what to watch out for and how to protect yourself from a bad deal. More specifically, we’ll cover:
- What is rent-to-own?
- How does rent-to-own work?
- Are rent-to-own a good idea?
- What are the pros and cons of a rent-to-own mortgage?
- What do you need to sign for rent-to-own?
- Where to find a rent-to-own arrangement?
We will also explain the nuances of how rent-to-own agreements work in Quebec vs the rest of Canada.
What is rent-to-own?
Rent-to-own, is a type of housing agreement that allows you to rent a home now with the option (or obligation) to buy it later at a set price. The way it normally works is that part of your monthly rent payment is credited toward your future down payment or purchase price. This can help you build equity over time while you’re still a tenant.
These arrangements usually have two parts: a rental agreement and a purchase agreement. You will rent the property for a few years, and at the end of the rental period, you can choose to buy the home. The purchase price will typically be agreed in advance.
In Quebec, the rent to own agreement is often referred to as “leasing with option to purchase” (Location avec option d’achat). Rules for how this should be done are set out by the Organisme d’autoréglementation du courtage immobilier du Québec.
How does rent-to-own work?
Rent-to-own allows you to buy a property without needing a large down payment upfront. However, you’ll still need to pay some money at the beginning of the agreement, known as an “option deposit” or “option fee.” This payment gives you the exclusive right to purchase the property at the agreed-upon price once the rent-to-own term ends.
The typical term of a rent-to-own agreement is 1 – 5 years. During this time period, you will live in the property and the landlord is not allowed to sell the property to anyone else. If you decide to buy the property at the end of the term, you will have the option to pay the remainder of the down payment, and take out a mortgage to buy the property.
For example, let’s say that:
- The agreed upon purchase price is $500,000
- The option deposit is $12,500 (2.5% of the purchase price)
- Monthly rent is $2,000
- $500 goes towards rent credits
- $1500 goes towards rent
- The rent-to-own term is set to 3 years
After 3 years, you will have built up $18,000 in rent. Combined with the initial option deposit of $12,500 this will give you $30,500 towards the down payment on the property. The minimum down payment in Canada is 5% so, in this case, to buy the home, you will need to pay 5% of the agreed purchase price which is $25,000. This will give you $5,500 left over for closing costs.
Bear in mind, if you make a down payment of less than 20%, you need to get mortgage insurance. This premium is added to your total mortgage amount, which increases both your monthly payments and the interest you pay over time. Furthermore, you will still need to qualify for the mortgage itself.
Is rent-to-own a good idea for buyers?
The main thing that you need to watch out for with rent-to-own homes is that, at the end of term, you need to get a mortgage to actually buy the property. This means that you will need to get approved for a mortgage, otherwise you may either:
- Forfeit the money that you paid towards your down payment and have to continue renting
- Pay a much higher mortgage rate for an approval through an alternative or private lender.
There are potential obstacles that can make it harder to get a mortgage at the end of the term. For example, if the wider economy changes and the Bank of Canada raises interest rates, your Total Debt Service (TDS) ratio may increase. This means your housing costs would take up a larger share of your income, and as a result, traditional mortgage lenders may no longer approve you for the loan amount you need to complete the purchase.
All that being said, there are several benefits to rent-to-own, let’s take a quick look at the pros and cons of rent-to-own.
Pros and cons of a rent-to-own mortgage (at a glance)
| Rent-to-own pros | Rent-to-own cons | |
| Combined rent and savings | Your rent payment includes a portion that goes toward your future home purchase. | Monthly payments are often higher than standard rent, which can strain your budget. |
| Built-in saving habit | Forces you to save for your down payment over time. This is a good habit anyway if homeownership is your goal. | You’re locked into paying the extra amount each month, leaving less room for other savings or expenses. |
| Rent credits build equity | Built-in saving habit; rent credits accrue and are put towards your down payment. | If you choose not to buy, or can’t qualify for a mortgage later, those credits are typically forfeited. |
| Option fee applied to purchase | The option deposit (usually 1–3% of the home’s price) is credited toward your down payment when you buy. | If you decide not to purchase, the option fee is usually non-refundable and lost as part of the contract. |
| Locked-in purchase price | If home prices rise, you’ll benefit from buying at the lower, pre-agreed price. | If home prices decline, you may still be required to pay the higher locked-in price. |
| Time to improve credit or income | Gives you a window to strengthen your credit or income before applying for a mortgage. | If your financial situation hasn’t improved by the end of the term, you may fail to qualify for a mortgage and lose your option to buy. |
| Exclusive right to purchase | No one else can buy the property while your rent-to-own agreement is active. | If you choose not to buy, you’ll need to find a new place to live and could lose your savings. |
| Live in the home while you save | You can settle into the property while working toward ownership. | You’ll likely be responsible for maintenance costs that a regular tenant wouldn’t pay. |
| Path to homeownership | If you keep up with payments and qualify for a mortgage, you’ll transition from renter to homeowner. | Missing payments or damaging the property could cause you to lose your purchase rights and all payments made toward ownership. |
| Potential for better mortgage terms | By the end of the term, stronger credit can help you qualify for a lower-rate mortgage. | If you still don’t qualify with a major lender, private or alternative financing usually comes with higher rates and stricter conditions. |
What do you need to sign for rent-to-own?
A rent-to-own arrangement combines two legal relationships:
- One for renting the home (the lease), and
- One for buying it later (the option or purchase agreement)
These are generally kept separate because renting and buying are governed by different laws and conditions.
The rental agreement covers your right to live in the property and pay rent month-to-month. While the option to purchase agreement defines your option (or obligation) to buy the property. Keeping these terms separate gives each part legal clarity, especially if the option to purchase a deal falls through.
The rent to own agreement typically includes:
- Purchase price: The agreed sale price of the home, which may be set upfront or based on the property’s market value at the time you decide to buy.
- Option deposit: An upfront payment, often 1–3% of the home’s price, that secures your right to purchase. This amount is typically non-refundable, but applied toward your down payment if you proceed.
- Lease term: The duration of the rental period, usually between one and five years, after which you can either buy the home or walk away.
- Monthly payments: The total rent you’ll pay each month, which usually combines regular market rent plus an extra portion that’s credited toward your down payment.
- Move-in date: The date you take possession of the property and begin the rent-to-own arrangement.
- Exit terms: A clear explanation of what happens to your deposits and rent credits if you don’t purchase the home or fail to secure mortgage financing at the end of the term.
- Maintenance responsibilities: Details on who covers upkeep and repairs during the lease period — in most cases, the tenant-buyer handles day-to-day maintenance while the owner retains responsibility for major structural issues.
There may be more conditions or details, depending on the contract. Each rent-to-own contract may be different. Having a lawyer and expert mortgage broker review the one presented to you is important.
Local Tip
However, once you decide to exercise your option to purchase, the transaction falls under the rules governing the sale of an immovable. At that point, you’ll need to sign a Promise to Purchase, complete a Deed of Sale before a notary, and update the property title in the land register (Registre foncier du Québec).
Where to find a rent-to-own arrangement?
Rent-to-own isn’t a federally regulated product, it’s a private arrangement. This means that programs vary widely by province, region and even city. Most companies that offer these agreements therefore operate locally or regionally and not nationwide. For this reason, we recommend that it is best to search for rent-to-own programs in your local area.
In Quebec, for example, companies like Quebec House Partners, HOS Financial and Requity Homes offer these structures. However, it’s strongly recommended to work with a specialist realtor when approaching these groups. A realtor experienced in rent-to-own contracts who represents your best interests can help you evaluate the terms, negotiate fair conditions and ensure the agreement is legally sound before you sign. You can find with a realtor that specialized in rent-to-own’s in Montreal and Quebec using Immovision.
Frequently Asked Questions
Final Thoughts: Do your homework to make the dream work
Rent-to-own can be a helpful path toward homeownership, but it’s not without risk.
We recommend getting a second (mortgage) opinion before you sign. This when you get an independent mortgage broker (not connected to the seller or rent-to-own company) review your agreement. They will be able to tell you where you stand in regards to qualifying for a mortgage and set a clear plan to improving your credit, income or debt ratios during the rental period.
A professional pre-purchase home inspection is equally important to uncover potential repair issues and confirm who’s responsible for maintenance under the lease. If the terms don’t work in your favour, it may be smarter to explore other ways to save for a down payment in Canada. For instance, using programs like the First Home Savings Account (FHSA) or RRSP Home Buyers’ Plan, giving you more flexibility and control when you’re truly ready to buy.
Speak with a professional?
Connect with a realtor who specializes in rent-to-own arrangements and build a strategy that fits your budget, strengthens your financial profile, and gets you one step closer to owning your first home.
