In a rent-to-own agreement, you lease a home for a set amount of time before buying it. The process can be a way for people with limited savings to buy homes because the agreement builds in opportunities to save for a down payment. And if you have credit challenges, you can buy some time in the home you want before having to qualify for a mortgage.
The idea sounds simple, but there are downsides. Monthly costs are usually higher than in a simple lease. If you don’t — or can’t — buy the house, you could lose your deposit and possibly face legal consequences. And while many rent-to-own homes are legit, scammers are known to post bogus listings, too.
In short: Rent-to-own is a legitimate way to buy a house — but it usually isn’t your only option. If you’re considering this route, here’s how to feel confident before you sign.
What is 'rent-to-own'?
Rent-to-own, otherwise known as a lease purchase, is a legal contract between a buyer and a seller to purchase a house with a future closing date, usually one to three years after the contract is signed.
This is different from a lease option, in which a buyer is given the choice to buy the place they were renting — before it goes on the market — but are under no contractual obligation to do so.
Rent-to-own contracts: What to ask before you sign
It’s a good idea to get an attorney to review your contract before you sign. There’s no standard template for rent-to-own agreements, and regulations and tax laws vary by state. Ask these questions to compare the terms of rent-to-own arrangements:
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What are the rent premiums, option fee and purchase price?
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How long will I rent before I can buy the home?
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Do I have the option to extend the rental period?
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What are the penalties if I miss a payment or fall behind on rent? Can I still buy the home?
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Will I lose my down payment and deposit if I change my mind?
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During the rental period, who pays for routine maintenance?
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Does the home need any major repairs? Who’s responsible for paying?
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Do you offer any credit counseling or education programs? (This is unlikely in a one-off agreement, but some real estate companies offer this perk.)
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