Do You Know the Basics About Rent To Own Condos?

By: ROS Team

People traditionally buy new homes using home loans. To secure financing, it’s important to first save money for a down payment and have a good credit score. But, of course, more may be required. If you’re considering a rent to own condo, it’s a good idea to know some basics about how the process works and the benefits of pursuing this arrangement.

1- What is Rent to Own Condos
2- Advantages
3- Disadvantages
4- Buyer/Tenant’s Obligation
5- FAQs

What is Rent to Own Condos?

This is an agreement between the owner and a potential buyer in which the buyer is allowed to live as a tenant for 3 to 4 years after which time he or she purchases the property. The option to buy usually requires the tenant to pay a fee to the owner/seller. The fee is usually 3% of the total cost of the property.

There are Two Types of Agreements used for a Rent To Own Transaction:

Rent To Own Contract: This is an agreement in which the buyer is legally bound to buy the property at the end of the lease.

Lease with the option to Buy: This type of agreement gives the tenant the chance to purchase the property after living on the property for the lease term without any legal requirement to buy it when the term ends.

Payment Calculation

Exact payment arrangements will differ based on the buyer/owner agreement. But the owner generally agrees to accept the sale price based on the current market value of the house. During the lease period, the tenant pays the rent, and a portion of it is allocated towards the house’s purchase price. This is referred to as rent credit and usually encompasses 25% of the total rent paid.

Advantages of Rent to Own Condos

You don’t have to pay the down payment until the end of the lease term.
You have time to address any adverse actions on your credit report during the lease term so you can qualify for a home loan later.
By renting the condo, you get to see firsthand whether you enjoy the house and neighborhood before fully investing in it.
Even if the market value of the property increases. You will continue to pay the agreed-upon rate throughout the lease term.
A tenant who lives on the property with a rent to buy option is likely to take good care of the property, thinking they may own it one day.
Profit is fixed and becomes independent of whether the market behaves well or badly.

Disadvantages of Rent to Own Condos

Even if you improve your credit score during the lease term. There is no guarantee that the bank will approve you for a home loan should you choose to buy the house.
If you end up not exercising your option to buy. You might have to forfeit the fee you paid upfront at the beginning of the lease term.

The Buyer/Tenant’s Obligation

Although exact terms can differ, tenants/buyers are usually responsible for the condo’s maintenance during the rental period. They may also be responsible for insurance, property taxes, and homeowners’ association fees. As long as their in a lease agreement, they will have to have renter’s insurance.

FAQs

Who is responsible for maintenance and repairs in a rent-to-own condo?

The tenant may be responsible for routine maintenance and repairs, while the landlord or owner may be responsible for major repairs or replacements. It is important to review the terms of the agreement carefully to understand each party’s responsibilities.

How do I find rent-to-own condos?

Condos for rent-to-own can be found on real estate websites or through an agent. It is essential to completely explore the details of the understanding and talk with a monetary counselor prior to entering into a lease-to-claim arrangement. Whether you’re considering condo developments in Toronto or elsewhere, it’s important to carefully evaluate the benefits and drawbacks of condo owners to make an informed decision.

Can I negotiate the purchase price of the condo in a rent-to-own agreement?

Yes, the purchase price can be negotiated at the beginning of the agreement or at the end of the lease term when the tenant decides to exercise their option to purchase.

What happens if I change my mind and decide not to purchase the condo?

If the tenant decides not to purchase the condo, they will typically forfeit their down payment and any portion of their rent payments that went towards a down payment.

Can the landlord or owner change their mind and refuse to sell the condo at the end of the lease term?

No, if the rent-to-own agreement includes an option to purchase, the landlord or owner is legally bound to sell the condo to the tenant at the agreed-upon purchase price.

Conclusion

You should consider rent-to-buy condos if you cannot arrange a down payment at the moment or have trouble getting finance due to a poor credit score. It will give you time to address your financial issues.

Rent-to-own condos can be an especially good idea if you’re moving to another city and are still getting familiar with the city. Living in the condominium utilizing the rent-to-own option will give you time to experience. The area and decide whether you want to live in the area long-term.