What you need to know about rent-to-own home deals

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You dream about buying a house, but you can’t — at least not yet. Maybe you don’t have the money for a down payment, or you’ve had problems with your credit. But what if someone offered you a chance to eventually own the house you’re renting?

You might be told it’s a chance to “stop throwing money away on rent.” But we’ve heard that many people who thought these deals were a path to owning a home watched their dreams disappear instead.

In a rent-to-own deal, the person or company that owns a home agrees to sell it to you in the future for a specific price. Rent you pay now is counted toward your future down payment on the house. But these deals can be risky — and even flat-out scams. Sometimes people find out:

  • the “seller” doesn’t really own the property
  • the owner hasn’t paid property taxes
  • the house is in terrible shape, or has issues like lead or asbestos
  • promised fixes aren’t made after a contract is signed
  • the house is getting foreclosed on

Even with legitimate rent-to-own deals, the devil is in the details. You might have to pay upfront fees and higher monthly payments than if you were renting. In some deals, if you miss a payment, the deal is off. If you do make it to the end, you might find you’re locked into paying more than the home is now worth, or that you can’t qualify for a mortgage to finish paying off the house.

Consider saving up your money and working on repairing your credit to buy a house down the road. For more on buying home, take a look at our Homes and Mortgages articles.

Tagged with: home, mortgage, rent

Comments

Isn't this issue within the jurisdiction of the FTC Unfair, dective acts and practices? I appreciate the pointers but do your job. Sometimes it take years for victims to discover they are actual victims due to TILA violations. It doesn't help either when the FTC constructs its complaint portal making it difficult for complainants to complete when trying to articulate the frauds and companies involved.

I would like to know if they have a list anywhere that offers rent to own property

I would think that more legitimate Rent to Own deals would more likely only include a smaller amount toward the purchase price would apply. If the rent were $1400 and only $200 were to go for the purchase it would sound more credible. But it could still be a fraud. A search of the county tax assessor's records may be advisable to determine the owners true identity.

Thanks for the information on this topic. I have always thought this was very risky. I know someone who got locked into this type of contract and they lost three years of money. The person own the house had it tied up with two mortgages. I do not like this type of own to rent. i would rather just rent.

Absolutely a bad idea to do rent to own unless you know the people. You make the deal out of excitement of the opportunity to own your own home. If you make a deal with your landlord to do a rent to own have them put all the information on the table because it's easy to get sucked in when you don't think about what you are really doing with your future. I have been asked by many clients if this is something they should do and I always tell them No. It is always best to protect yourself against these types of deals. Do yourself a favor and work on your credit it's a much better deal to fix your credit issues and talk with your lender about down payment assistance programs they are legal and protected and then you won't have the stress of whether you made the right choice. Also before signing with your lender make sure they explain everything to you, ask questions if you don't understand what they are saying. Always let your lender know what kind of payment your looking for because truly only you really know what you can afford to pay every month. Being approved for a home way out of your affordability is a stress you don't want. No one needs to get locked into something that later they end up being foreclosed on losing everything you worked so hard for... Do your research, and prepare for your future.

And the value of the home will very likely be different from the agreed-upon price, which means that the buyer may need more to purchase the home than originally thought.

Thank you for this article. I have often thought many of these rent to own offers were hidden scams. It's good you brought this out in the open for closer inspection. Your article is appreciated. Thank you!

Thank you for this info...I recently had someone try to talk me into a rent to own. I was not looking and he approached me in a class room environment.

Great advice. Thank you for the service you are providing.

Well, all of these opinions are indeed substantial but couldn't someone get a rent to own contract that will protect their interests? I mean we have good contracts for many other things. A lot of would be buyers want to rent then own. But I think it locks up the seller and buyer who in the future may not even want the original contract. So it should be open to change and if they don't buy then the proceeds of a down payment go back to the landlord end of deal.

Rent-to-own should be handled in the same way buying another house outright. If people would go through a lawyer and use some common sense they could figure things out earlier avoid a lot of these pitfalls

If the price is agreed upon (in the contract) and the value of the home goes up, the buyer will get a great deal. The risk isn't all on the buyer. The seller is taking a risk too.

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