FAQs About Rent to Own Homes

What exactly is rent-to-own?

When you rent-to-own, you enter into an agreement where you commit to renting a property for a predetermined period of time. You then have the option to buy the home you are already living in. The lease typically includes a smaller down payment and a monthly ‘premium’ that is allocated toward the price of the house. The price is determined and written into the lease agreement. It does not change at the end of the lease.

For example, you and the seller/landlord agree on a price of $150,000. You give a down payment of $10,000, and $200 of the monthly rent is allocated to the price for a period of two years ($4,800). At the end of the lease, you have $14,800 toward the home price of $150,000, leaving a mortgage in the amount of $135,200.

Why choose rent-to-own vs. a mortgage?

Rent-to-Own is an excellent alternative for those who want to buy but are either working to improve their credit score or don’t have enough of a down payment saved for the home.

For those who are ready to make one last move into a home, but are not yet prepared for a mortgage, rent-to-own can be a great alternative. With this option, a portion of the rent goes toward the purchase price of the home, allowing the prospective buyer to work toward the needed down payment while already living in the home as a tenant.

For those who need to work on their credit score, this option is a great way to get into the home, pay bills on time, and increase their score to qualify for a mortgage.

Is rent-to-own worthwhile?

Rent-to-own can be a wonderful option for both buyer and seller. While a prospective buyer is getting his/her finances in order, a seller can feel reassured about a prospective homeowner taking care of the property. Buyers get the extra time they need to save and lock in the price of their desired home. If the buyer walks away at the end of the lease, the seller has the added premium and the down payment as compensation for the delay in selling.

Is there any risk with rent-to-own?

Home buying comes with inherent risk. Rent-to-own has risks as well. Since the home price is locked in, a drop in value is always a risk. An increase in interest rates is also a potential risk for buyers. Sellers run the risk that a tenant will not go on to buy the home, putting them back at ‘square one.’