Let’s be real, rent-to-own is kind of a unicorn in the U.S. housing market. Roughly around 5% of home deals go down this way, so it’s definitely not the most common path to buying. But for some folks—especially if your credit’s a little rough or you don’t have much saved up—rent-to-own can be a way to get your foot in the door of homeownership.
Here’s how it works: you start renting the place, with a bit of your rent potentially going toward buying it down the line. This gives you time to work on boosting your credit score and saving more cash for the down payment. It’s almost like a test drive that has potential to build up equity (if you decide to purchase the home in the end,) all while you’re living there.
Pros and cons of rent-to-own
| Pros of rent-to-own | Cons of rent-to-own |
|---|---|
| Path to homeownership: Provides time to save for a down payment or improve credit score. | Higher monthly payments: Rent is often higher than standard rentals as part may go toward purchase. |
| Locked-in price: Purchase price is set at the start, beneficial if home values rise. | Potential loss of investment: If you decide not to buy, extra payments toward purchase may be lost. |
| Test drive the place: Allows you to experience the home and neighborhood before committing. | Limited availability: Rent-to-own options are not common and may require extra effort to find. |
| Less upfront cash: Generally requires less initial down payment, easing the transition to ownership. | Complex agreements: Rent-to-own contracts can be complex; terms may be challenging to navigate, especially for missed payments or if you choose not to buy. |
Is rent-to-own common?
It’s not very common now or historically, but it is getting more popular, especially in tight housing markets where home prices are high. It’s an enticing option for folks who might not qualify for a mortgage just yet.
Building equity in rent-to-own
So, can you build equity in a rent-to-own deal? Yes and no. You can build some equity if part of your rent goes toward the purchase price, but it’s not the same as traditional homeownership. If you end up buying, that rent credit helps with your down payment. But if you don’t buy, you lose that investment, so it’s a bit of a gamble.
How to find rent to own properties
Online listings: Check websites like Tomo.com or specialized rent-to-own sites. Use filters to search for “rent-to-own” properties in your area.
Real Estate Agents: Talk to local agents who may know of sellers willing to consider rent-to-own agreements. They can help you navigate the process and find the right place.
Direct negotiation: If you find a house you love that’s not advertised as rent-to-own, consider reaching out to the owner. They might be open to negotiating a rent-to-own deal if their property has been on the market for a long time, or they’re trying to move in a pinch.
Things to remember when considering rent-to-own as an option
Do your homework: Look into your local market and know what rent-to-own terms usually are-check out these items
| Factor | Description |
| Market conditions | In competitive markets, rent-to-own options may be limited and terms stricter. In slower markets, sellers may be more open and flexible with terms like upfront costs. |
| Option fee variations | Option fees vary by location and property value. High-demand areas may have higher fees, while slower markets may offer lower or negotiable option fees. |
| Rent premiums | Rent premiums (extra rent going toward purchase) can be higher in appreciating markets. Slower markets may have lower or more negotiable premiums. |
| Duration of lease option | Most rent-to-own contracts are 1-3 years, but this varies. High-growth areas often favor shorter terms, while slower markets may offer longer periods. |
| Maintenance responsibilities | Some agreements require renters to handle maintenance, similar to owning. Local norms vary, so check if repairs fall on renter or owner. |
| Purchase price lock-in | Locking in a price benefits buyers in appreciating markets, though some sellers set higher prices or escalation clauses. Slower markets may offer more favorable terms. |
Final thoughts
Let’s be real: rent-to-own isn’t very common, and it might not be the best fit for everyone. If you’re feeling unsure about stepping into homeownership or have questions about your financial readiness, don’t hesitate to reach out! Our team is here to offer personalized consultations to help you find your path toward purchasing your dream home. Whether you want to explore rent-to-own options or need guidance on traditional buying, we’ve got your back!
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.