Frequently Asked Questions About Rent to Own

We've compiled a list of the most frequently asked questions about rent to own and answered them for you here. We've kept our answers short and sweet, but if you want to learn more, each question and answer links out to a blog or guide where you can learn more!

Are rent to own homes real?

Yes, rent to own homes are a real opportunity for people who need help with or time to save up a down payment. Rent to own also gives tenants time to build their credit to qualify for a mortgage.

Can you rent to own a home through HUD?

Yes, you can rent to own, also known as lease-option and lease with option to buy, a home using HUD assistance, so long as the owner is cooperative. While you cannot rent to own a home through HUD, you can use HUD programs to help you rent to own. For example, you can use the Section 8 Housing Voucher to make your monthly payments. So long as the landlord is cooperative.

Do I need a realtor to rent to own?

No, you do not need a realtor to rent to own. In fact, most realtors are not willing to work with clients looking to rent to own because they do not make a lot of commission.

Do realtors help find rent to own homes?

Yes, a realtor can help you find a rent to own home; however, it is unlikely you will find one who will want to. Realtors make a very little commission from rent to own homes. They basically have to make a commission from your option fee because the sale of the home isn’t for a long time. Additionally, many buyers decide not to buy rent to own homes, leaving the realtor without commission at the end.

How do you lease to buy a house?

To lease to buy a house, first, you look for a seller interested in renting to own his or her home. To initiate your lease to buy or lease-option, you pay an option fee to retain the right to purchase the home. You pay monthly rent and premium payments to the seller. If you purchase the home, the money you have paid as an option fee and premium payments go toward your down payment on the home. If you decide not to purchase the home, you simply walk away.

How do you rent to own a home?

To rent to own a home, first, find a seller who is willing to sign a lease-option for his or her property. Begin your lease with option to purchase by paying an option payment and rent the property at a small premium. You have the option purchase the home at any point throughout the lease. The premium and option payment will be credited to your down payment.

How does a lease option to purchase work?

Lease option to purchase works when a tenant leases a home from a person who is looking to sell his or her home. Therefore, the tenant is leasing the property and has the option to purchase it. You retain this option by paying an option payment at the beginning of the lease and paying premium payments each month. To initiate a lease option to purchase, you, first, sign a contract with the seller. You, then, pay the option fee, which will be about 5 percent of the purchase price of the home. The option fee gives you the option to purchase the home you are renting at any point throughout the lease.

How does a lease to own work on a house?

Lease to own works when you lease a house from a landlord with the intention of owning it at some point in the future. In a lease to own agreement, you pay an option payment at the beginning of your lease, then you lease the property and accrue rent credits. You have the option to purchase the home at any point throughout the lease. When you do purchase the property, your option payment and rent credits are credited to your down payment on the home.

How does a lease with an option to buy work?

When you lease with the option to buy, you’re renting a home and you have the option to purchase it at any point throughout the lease. It works because you pay an option fee at the beginning of your lease to retain the option to buy the home. You pay rent, like you do in any lease, and can work out a premium payment each month to earn rent credits. The rent credits and option fee are credited to your down payment for the property at the end of the lease, should you buy it. Otherwise, the seller keeps the money.

How does rent to own work on a house?

Rent to own works because you rent the house for a period of time and then have the option to buy it before the lease ends. You have the option to purchase the house at any point throughout the lease. You pay additional premium payments that go toward your down payment. If you do not purchase the home you lose the credit for these premium payments.

How does rent to own work with bad credit?

It's easier to make rent to own work with bad credit than it is to make a mortgage work. While some sellers might check your credit, they are only checking to make sure your credit will be high enough for you to qualify for a mortgage by the end of the lease. Your credit can be bad when you rent to own. Rent to own can be the key for someone with bad credit to own a home. You just need to build your credit high enough during the lease to qualify for a mortgage at the end of the lease.

How much is it to rent to own a house?

The price of a rent to own home depends on the market value of the home. Typically, the seller and the buyer work together to estimate what the home will be worth at the end of the lease. Additionally, the rent is fair market rent plus the premium payments. The option fee is less than five percent of the purchase price of the home.

For example: On a $100,000 home, the option payment would fall between $1,000 and $5,000, which you could pay in cash or as some other item the seller feels is valuable enough to count as the option payment.

The monthly rent payment would be calculated based on fair market rent for the area. Then you and the seller can decide whether you want to include premium payments as part of your contract. If you do, you will get rent credits based on extra money you pay each month. You can negotiate with the seller so that he or she matches your payments. Those payments will then go back to you and serve as part of your down payment.

Rent to own costs just as much as renting a home until you have enough money to buy one, as long as you do purchase the house you are looking at. Depending on how good the rent credits you work out are, it can even cost less.

Is rent to own safe?

Rent to own is safe. It has its risks, but so long as you are aware of them, they are completely avoidable. For example, make sure that you can raise your credit score high enough to qualify for a loan at the end of the lease. Otherwise, you would lose your option payment and premiums because you didn’t purchase the home.

What do you need to qualify for a rent to own home?

There are no set qualifications because every seller is different. However, most will ask for proof that you have income stability, a clean background check, a credit score that can be improved quickly enough to qualify for a mortgage within the lease time and the ability to meet financial requirements.

What does it mean to rent to own a home?

Renting to own a home means that you are currently renting a home with the intent of buying it before your lease ends. You’ve paid the seller an option fee to have first option to purchase the home. Additionally, you are making monthly premium rent payments to the seller that will be credited to your down payment if you purchase the home.

What does it mean when your house is financed by the owner?

When your house is financed by the owner, it means that the previous owner gave you a loan to purchase it. Buyers who may not qualify for a bank loan might qualify for seller financing. Some sellers list their home as seller financed to entice new buyers. You can rent to own a seller financed home if the owner agrees. Basically, you would rent the home, pay the option fee and any premium payments, like a normal rent to own situation. If the seller is financing the home, you may even be able to rent the home for longer than usual and build up greater equity through rent credits.

What is a lease option on a home?

A lease option is a type of rent to own contract that means the buyer, who will lease the property for a set lease term, has the option to buy the home at any point throughout that contract. In this scenario, the seller is obligated to sell the home to the seller, should the seller want to purchase it during the lease term. The seller cannot sell the home to another buyer during that contract. However, the buyer merely has the option to buy, not the requirement.

What is a lease-purchase on a house?

A lease purchase is a type of rent to own contract in which the buyer, who will lease a property for a set lease term, has the obligation to purchase the house at the end of the lease. The seller also has the obligation to sell the home to the buyer at or before the end of the lease. Lease purchase is one of the fewvariations of rent to own that is truly different from the rest. It means that you sign the lease and you must purchase the home by the end of the lease. Other variations of rent to own give you the option to purchase the home. However, if you sign a lease-purchase agreement you must buy the home or face legal consequences.

What is a lease to own option for a home?

A lease to own option is a rent to own contract, through which you rent the home for a certain period of time from the seller and then you have the option to purchase the home before that time ends. However, you are not required to purchase the home. Lease to own option for a home is a form of rent to own, which means, in addition to rent, you pay an option fee and possibly rent premiums on the home that eventually go to your down payment when you buy it. The option fee is what ensures the unilateral contract between the buyer in the seller, in which the seller must sell to the buyer and cannot sell to anyone else; however, the buyer merely has the option, not the requirement, to buy before the lease ends.

What is a purchase option?

A purchase option is a type of rent to own contract in which you have the option, but not the requirement to purchase a home. It means that you have the option to purchase the property you’ve been renting before the lease ends, and the seller has the obligation to sell the property to you if you choose to purchase it within that timeframe. It's important to note that the seller cannot sell the property to anyone else until after your contract has expired. This is possible because you pay an option payment, which ensures your option to purchase the home. If you buy the property, the option fee is credited to the purchase of the home, if you choose not to buy, the seller keeps the option payment instead.

What is a rent to own agreement?

A rent to own agreement includes the purchase price you will pay for the home, the standard rent you pay each month, the rent premium payments, your option deposit and maintenance and other fees.

What is a rent to own home?

A rent to own home is a home that a seller rents to a prospective buyer. The prospective buyer typically could not qualify for a mortgage prior to the lease and uses the lease period to improve credit and eventually qualify for a mortgage to purchase the home.

What is a rent to own loan?

A rent to own loan is when a person looking to sell a product loans it to you for a set period of time during which you have the option to buy the item. Like most loans, you have to make a down payment to get the product, in the case of rent to own homes, that is an option fee. Renting to own a property can help you eventually qualify for a loan that will allow you to actually purchase the home. The difference between a rent to own loan and a conventional loan is that a conventional loan lends you money, a rent to own loan lends you a property. Through rent to own you can build your credit and save up for a down payment to get a mortgage – about 4 to 7 times the amount you paid for the option fee.

What is a sandwich lease?

In a sandwich lease, a landlord leases a property to a tenant(tenant 1) and that tenant leases the property to another tenant(tenant 2). It's called a sandwich lease because the landlord and tenant 2 (the bread) are brought together by tenant 1 (the jelly). In a sandwich lease option an investor, or middleman, options a property from a homeowner. The middleman then options the property to you, the person ultimately leasing the property. The investor, in this situation, is tenant 1.

What is a seller-financed loan?

A seller-financed loan means the owner is offering the property for sale and directly providing financing for it. Buyers avoid needing a bank loan for move in. It is easier to get a seller-financed loan on bad credit than it is to get a bank mortgage. Especially, if you're securing it after renting to own the property from the seller and making your payments consistently on time throughout the lease. Interest payments may be higher on a seller-financed loan.

What is an option to buy real estate?

A real estate option means you have the exclusive option to purchase a property. While you have the option to buy, the seller has to sell. These are formed through lease-option contracts. When you’re using your option to buy real estate it means that you are exercising your option to purchase a property at the end of a rent to own lease. Throughout the lease, you make normal rent payments with an added premium that goes toward your down payment if you buy the home. Option to buy real estate is a rent to own listing type.

What is renting with an option to buy?

Renting with an option to buy is a type of rent to own contract. It means that in your contract with the seller, you have been given the option to buy the property at any point throughout your lease. You pay an option fee when you sign the contract to retain the option to buy the home. You are under no obligation to buy the home you are renting, but if you do not buy it you lose the money you gave as an option payment. If you purchase the home, you get the option payment back as a credit for your down payment on the property. It's like you're paying the down payment in two increments. The first as a promise to buy later and the second as a commitment to the bank to finish paying for it.

What is the difference in rent to own and lease to own?

There is no difference between rent to own and lease to own. Both are types of rent to own listings through which you rent a home and have the option to buy it at any point throughout the lease.

What's the catch with rent to own homes?

Rent to own homes aren’t dangerous as long as you know about the potential pitfalls. The main catch is that if you don’t purchase the home, you lose your option payment and your monthly premium payments. It’s important to make sure that you will qualify for financing at the end of the lease before you sign the lease. That is the main reason people end up not purchasing rent to owns.

Are rent to own homes more expensive?

Rent to own is more expensive, the same price and less expensive than the alternatives. Which one depends on the scenario. When considering the monthly cost of rent, you do pay more each month to rent to own. However, the extra you pay goes toward your eventual down payment of the home. Additionally, the cost you pay for the home is an amount that you and the seller agree the home will be worth at the time of sale. Should you actually purchase a home you are renting to own, it is not more expensive.

Are rent to own houses scams?

Rent to own houses are not scams. However, people who rent to own can scam you. Check with your local tax assessor to make sure the listing isn’t pre-foreclosure, don’t pay any additional fees that aren’t common to rent to own and be wary of unreasonably high prices.

Can you rent to own a house without a down payment?

You can rent to own a house without a down payment. However, you have to pay an option fee to rent to own a home, which is like a down payment, in order to retain the option to purchase the home you are renting. Additionally, when you eventually purchase the home, you pay a down payment. Your premium payments and option fees are credited to that down payment.

Can you rent to own with a previous eviction?

Yes, you can rent to own with a previous eviction. There are no specific requirements to rent to own. Therefore, you can rent to own a home with a previous eviction. However, although there are no qualifications to rent to own, each individual seller may have his or her own criteria for deciding on tenants. He or she might deny you because of a previous eviction. Although, the seller might not perform a background check, find out about your eviction or include it in his or her own decision-making process.

Can you rent to own with owner financing?

You can rent to own and then purchase the home with owner financing. However, that is up to each individual owner. Should an owner wish to finance the home for you, you definitely can! An owner who does owner financing kind of continues the rent to own process, except your full payment is going toward paying off the home,
as opposed to a small part of the payment. The sooner the seller of a rent to own deal is willing to switch to seller financing, the better for you. You can make the same size payments, but they'll benefit you more.

Can you rent to own with section 8?

Yes, you can use your housing choice voucher to help pay for your rent and rent premiums during your lease. Additionally, some Public Housing Agencies offer a Homeownership Voucher Program you can use to make payments on the mortgage once you purchase the home. A 30-year mortgage qualifies you for 20 years of support from the homeownership voucher.

Who benefits from rent to own?

Both the buyer and the seller can benefit from rent to own. The buyer benefits from property appreciation, time, mortgage rates and flexibility, The seller benefits from a committed and incentivized buyer, steady cash flow and a way out of a slow market.

Why shouldn't you rent to own?

You shouldn’t rent to own if your credit score won’t qualify for a mortgage at the end of your lease. Talk to a mortgage broker about what kind of credit score you would need to qualify for a loan. Use a credit simulator to figure out what you would need to do to get there and make sure it is attainable. You don’t want to do rent to own if you won’t qualify for a mortgage because you will end up losing your option payment and premium payments.

How can you rent to own with low income?

When you have low income, you should negotiate with the seller to ensure that your rent and premium payment makes up no more than 30% of your income each month. Additionally, you should shop for a home that you can afford on your current salary. Meet with a mortgage broker before renting to own to ensure that you will qualify for a mortgage at the end of the lease. Otherwise, you will be wasting your income on the premiums because they will not be returned to you should you not qualify.

When should you rent to own?

You should rent to own when you

(1) have a credit score or are close to having a credit score that will qualify you for a mortgage,
(2) need to start saving up for a down payment and/or
(3) have found a home that you would like to purchase but would like to live in for a little while as a test drive.

Many people use their rent to own lease to finish building up their credit and saving up for a down payment.