Rent-to-Own Homes: Are They Worth It?


If you dream of owning your own home but can’t afford a down payment, there’s an alternative option. Instead of buying a house, you can choose to look into rent-to-own homes.

When you rent-to-own, you’re basically agreeing to a fixed purchase price for the house, but you don’t pay it in the same way as a traditional sale.

Here are the basics for this unique way to live in a home while working up to a purchase.

The Basics of Rent-to-Own Homes: The Fine Print

There are two main kinds of rent-to-own agreements: a lease agreement with purchase agreement, or a lease agreement with option to purchase.

The type you get will depend on your landlord. Remember that rent-to-own agreements are not common, and you’ll rarely find them among property listings. Before you make a decision, understand what you’re getting into.

Lease Agreement with Purchase Agreement

With a lease agreement with purchase agreement, the purchase is finalized in the beginning. The seller and the renter agree on a purchase price at the outset, or agree that the price is dependent on an upcoming appraisal. They also set the closing date.

This is the lease agreement you should choose if you know, without a doubt, you want to rent-to-own.

Lease Agreement with Option to Purchase

When you sign a lease agreement with the option to purchase, you as the tenant have to pay something called an “option fee.” This gives you the right to buy the house at a later time. If you end up exercising that right, the seller must put the option fee toward the final purchase.

On the other hand, if you end up forgoing the purchase, you have to forfeit the option fee.

The option fee will be a percentage of the total purchase price of the house. Usually, it will hit somewhere between the two and seven percent mark.

The Benefits of Rent-to-Own Homes

One of the main benefits of investing in a rent-to-own property is that a percentage of your monthly rent can be applied to the total purchase price. This means you’ll build up equity while you’re renting. It’s a unique opportunity to live in your home while you’re in the process of buying it.

Another benefit is that total responsibility for maintenance and repairs will be split between you and the landlord until your purchase goes through. This usually means the landlord shoulders the burden for large repairs, while you take care of smaller ones. The distinction between the two should be stipulated in the agreement.

Rent-to-own is a good option if you can’t get financing at present for a down payment. If you can’t take the steps to purchase a home the standard way, rent-to-own can be an option that helps get you closer to your dream.