Rent-to-own arrangements are often marketed as a “pathway to homeownership” for Canadians who aren’t quite mortgage-ready yet.
And in the right circumstances, they can be.
Many rent-to-own agreements fail at the last minute because they were not structured correctly from the start.
If you’re considering rent-to-own, or already in one, understanding how lenders and CMHC (Canada Housing and Mortgage Corp. view these agreements is critical.
The Biggest Misconception: “All My Rent Counts as My Down Payment”
It doesn’t.
Under Canadian mortgage guidelines, rent itself is not a down payment.
In a rent-to-own arrangement, the only portion that can be considered toward a future down payment is the amount paid above fair market rent.
Fair market rent means what a typical tenant would reasonably pay for a similar property in that area.
Anything up to that amount is treated as normal rent.
Only the excess portion may be credited.
How Rent-to-Own Credits Really Work
Here’s a simple example:
- Fair market rent: $1800 per month
- Actual rent paid: $2,000 per month
- Difference: $200 per month
That $200 is the only amount that may be credited toward a future down payment.
Over five years:
- $200 × 60 months = $12,000
This surprises many buyers — but it is a core rule.
Why Many Rent-to-Own Agreements Don’t Work Later
A large number of agreements are written without mortgage input at the beginning.
Common problems include:
- No clear fair market rent established
- Credits that don’t meet lender rules
- Formal offer to purchase was not put together at the time of the arrangements
- (documents cannot be back dated)
When this happens, lenders cannot use the agreement as written.
In many cases, the only way to proceed is:
A brand-new purchase offer written at current market value, using today’s mortgage guidelines.
Not the original rent-to-own contract.
Rent-to-Own Is Not a Shortcut — It’s a Strategy
A properly structured rent-to-own:
- Uses realistic market rent
- Clearly separates rent from credits
- Has a purchase price that can be supported by appraisal
- Includes a plan to improve credit and savings during the rental period
When those pieces are in place, rent-to-own can be a stepping stone.
When they aren’t, it becomes a very expensive lesson.
What to Do Before Signing Anything
If you’re exploring rent-to-own:
- Ask what the fair market rent is and how it was determined
- Confirm exactly how monthly credits are calculated
- Have a mortgage professional review the structure first
- Make sure there is a realistic plan to qualify in the future
A 30-minute conversation before signing can save years of frustration later.
Why This Matters
Rent-to-own can work — but only when it is built to lender standards from day one.
Understanding the rules protects your time, your money, and your future buying power.
What to do next:
If you’re in a rent-to-own agreement, or thinking about one, ask for a review. Getting clarity now helps you move forward with confidence and realistic expectations.
