If you have the right financial situation and find the right seller, a Rent-To-Own transaction can be the right path to get you into homeownership and has several benefits over a standard rental transaction.
First, as the future buyer, you are typically not required to have as strong of credit or a complete down payment at the start of the agreement. So if you don’t yet have the money for a down payment and/or a solid credit history, but you do want to accelerate your trajectory towards home ownership, then rent to own could be a good fit.
Second, Rent-To-Own transactions typically are structured to allow the renter to build equity over the course of the rental period. Having a portion of your monthly rent go to building equity or reducing your down payment is a great way save money and help bring the goal of homeownership closer.
Third, making consistent payments over the course of the rental period allows you to establish a track record of on-time payments that will improve your credit score and demonstrate to lenders that you are able to make mortgage payments on the home.
Fourth, many Rent-To-Own sellers require that potential buyer to enter into a credit counseling program and set a structured budget. Being required to participate in credit counseling and a structured budget can increase the likelihood of improving your financial situation to the point where you can purchase the home.
Unfortunately there are also draw-backs to the rent to own transaction.
Negotiating the terms of a rent-to-own can be difficult and not all sellers are willing to offer fair terms to the buyer. As a renter-to-owner, you need to make sure that several key points are agreed to in the contract, to protect yourself and ensure the greatest chance of buying the home at the end of the rental period. Please see our Negotiations section for more info on this topic.
Also, rent-to-own homes are not as widely available as other home sale types, making it more difficult to find more options. This happens in part because not all sellers are familiar with the transaction. That being said, some people who have listed their home as just “for sale” can be convinced to rent-to-own their home.
Finally, there is a chance that at the end of your rental period you do not qualify for a mortgage, which would make it practically impossible for you to purchase the home. This means that the part of your rent payments going to the down payment would be lost, and you’d have to re-start the process from the beginning.Learn more about the negotiation, offer and final agreement >