Rent to own home providers glossary
Short, plain-English definitions of the terms you'll meet when choosing a rent to own home provider in Ontario.
- Credit rebuilding
- Credit rebuilding is the process of improving a credit profile over time by making on-time payments and keeping balances low relative to available credit. It matters in rent-to-own deals in Ontario because many buyers come to them after past credit problems.
- Credit score
- A credit score is a three-digit number, typically from 300 to 900, that summarizes how reliably a person has repaid borrowed money. In Canada, Equifax and TransUnion are the two credit bureaus that compile the reports and scores lenders use when deciding whether to approve a mortgage.
- Debt service ratio
- A debt service ratio is the share of a borrower's gross monthly income that goes toward housing costs (gross debt service, or GDS) or toward all debt payments (total debt service, or TDS). Canadian mortgage lenders use both to decide how much they will lend.
- Down payment
- A down payment is the upfront portion of a home's purchase price that the buyer pays before the rest is financed or settled under the purchase agreement. In Ontario rent-to-own deals, part of the monthly rent paid during the lease period may be credited toward this amount.
- Mortgage broker
- A mortgage broker is a licensed professional who arranges home loans by matching a borrower with a lender or lenders, rather than lending money directly. In Ontario, brokers are licensed and regulated by the Financial Services Regulatory Authority of Ontario (FSRA).
- Mortgage readiness
- Mortgage readiness is the state of meeting a lender's credit, income and down payment requirements well enough to qualify for a mortgage. In rent to own deals, it is the point at which a renter can realistically buy the home at the end of the agreement.
- Mortgage stress test
- The mortgage stress test is a qualifying-rate check that federally regulated lenders in Canada apply to borrowers, requiring them to show they can afford payments at a higher rate than the one they will actually pay. It is set by the federal regulator OSFI and limits how much a buyer can borrow.
- Option period
- The option period is the fixed window, often a few years, during which a tenant in a rent to own agreement can choose to buy the home at the agreed price. If the tenant does not exercise the option within that time, the right to buy typically expires.
- Private mortgage
- A private mortgage is a loan secured against real estate that comes from an individual or company rather than a bank or federally regulated lender. These loans are usually short term and are often used when conventional financing is not available or not suitable.
- Purchase price lock
- A purchase price lock is a clause in a rent to own agreement that fixes the price the tenant-buyer will pay for the home at signing. The price does not change later, even if the market value of the home rises or falls by the time the option is exercised.
- Rent premium
- A rent premium is the extra amount a tenant-buyer pays each month on top of the market rent for a home, often with part of that extra sum set aside as a credit toward the eventual purchase price.
- Rent-to-own agreement
- A rent-to-own agreement is a contract that combines a lease with an option or obligation to buy the property at a set price within a set period. It lets a tenant live in a home now while working toward ownership.
- What is a B lender?
- A B lender is a non-bank or alternative mortgage lender that approves borrowers who do not meet the stricter criteria of prime banks, such as those with lower credit scores, irregular income, or recent credit problems. These loans typically carry higher interest rates and fees than prime mortgages.
- What is a lease option?
- A lease option is a rental agreement that gives the tenant the right, but not the obligation, to buy the home at a set price by the end of the lease term. If the tenant chooses not to buy, the lease simply ends.
- What is a lease purchase agreement?
- A lease purchase agreement is a contract that combines a rental with a binding obligation for the tenant to buy the property at a set price by the end of the term. Unlike a lease option, the buyer cannot walk away from the purchase without facing the contract's consequences.
- What is a notice of assessment?
- A notice of assessment is the summary the Canada Revenue Agency sends after it processes a tax return, confirming the income and tax figures it has on file. Rent-to-own providers in Ontario often ask self-employed applicants for one to verify their income.
- What is a rent-to-own company?
- A rent-to-own company is a business that buys or holds residential properties and rents them to tenants who have the option to purchase the home at a set price within an agreed period. In Ontario, these firms offer a path to ownership for buyers who are not yet ready for a conventional mortgage.
- What is a rent-to-own vendor?
- A rent-to-own vendor is the seller or landlord party in a lease-option or rent-to-own home agreement, the person or entity that owns the property and agrees to sell it to the tenant-buyer at a future date. It is distinct from a rent-to-own company, which is a business that may market, arrange, or manage these deals.
- What is a stated income mortgage?
- A stated income mortgage is a home loan where the borrower declares their income instead of proving it with standard documents like T4 slips and pay stubs. Lenders typically rely on other evidence of cash flow or assets, which makes these loans relevant to self-employed borrowers.
- What is an agreement of purchase and sale?
- An agreement of purchase and sale (APS) is the standard written contract in Ontario that sets out the terms under which a buyer agrees to buy a property from a seller. In rent-to-own deals, it is often signed alongside a lease that spells out the rent, the option to buy, and how rent credits may apply to the price.
- What is an option fee?
- An option fee is a non-refundable upfront payment that gives a tenant-buyer the exclusive right to purchase a home at a set price within a fixed period. It is usually credited toward the purchase price if the buyer goes ahead, and it is separate from monthly rent.
- What is exercising the option?
- Exercising the option is the formal step where a lease option buyer notifies the seller, in the manner and within the time set out in the contract, that they intend to purchase the home at the agreed price. Once validly exercised, the option generally obligates both sides to move toward closing.
- What is forfeiture in rent-to-own homes?
- Forfeiture is the loss of money a rent-to-own buyer has paid toward a future purchase, such as an option fee or rent credits, when the buyer defaults on the agreement or decides not to buy. The exact amounts and conditions depend on the written contract.
- What is rent credit?
- Rent credit is the portion of each monthly rent-to-own payment that the buyer saves toward the down payment, applied at closing when the buyer purchases the home. It is set out in the rent-to-own agreement and is separate from the rent that covers occupancy.