Rent-to-Own: An Easy Way to Buy a Home, or a Trap?

If you want to own a home, the rent-to-own option may seem appealing, particularly if you’re credit- or income-challenged and can’t qualify to buy a home any other way. But it’s not always as simple as it seems.

In this situation, the homeowner may be having difficulty selling the home, and may decide to sell it to you after a pre-determined amount of time. In the meantime, you rent and live in the home, and save for the down payment.

The two parties enter into an “Option to Purchase Agreement,” and the tenant pays an additional fee up front — usually about 2% to 2.5% of the home’s purchase price. This fee is later deducted from the down payment.

When the lease ends, ideally the owner follows through on the agreement and sells the home to the tenant. But things may go wrong.

Read the agreement carefully first, before you agree to anything. If possible, talk to a lender to find out how easy or difficult it may be to secure financing at the end of the lease; a good real estate agent can also steer you in the right direction at the beginning.

One big benefit of the arrangement is that the tenant knows how much the house will cost, so rising house prices aren’t a concern.

However, the owner could include a clause in the agreement specifying that the buyer may have to pay more at lease-end if house prices rise significantly.

It’s one good reason to understand what you’re getting into from the start