Renting with a Future: How Rent-to-Own Works

Rent-to-own homes offer an alternative route to homeownership for renters who need time to improve their credit or save for a down payment. This arrangement allows you to rent a home with the option—or sometimes the requirement—to purchase it at the end of the lease. While it can be a smart strategy, it's important to understand how the process works and whether it aligns with your financial goals.

How Does Rent-to-Own Work?

With a rent-to-own agreement, you typically:

• Pay an option fee (1-5% of the home’s price) to secure the right to buy the home later.

• Agree to a locked-in purchase price, set at the beginning of the contract.

• Make monthly rent payments, with a portion possibly going toward your future down payment.

• Take responsibility for maintenance and repairs, depending on the contract terms.

There are two types of rent-to-own agreements:

• Lease-Option Agreement – You have the option to buy the home but are not required to. If you choose not to buy, you typically lose the option fee.

• Lease-Purchase Agreement – You are legally required to buy the home at the end of the lease. If you fail to do so, you could face penalties or legal consequences.

Pros and Cons of Rent-to-Own

Pros:

• Time to Build Credit & Save – If your credit score needs improvement, rent-to-own gives you time to increase it while living in the home.

• Locked-In Purchase Price – This can be an advantage if home values rise during your lease term.

• Familiarity with the Home & Neighborhood – You get to experience the home before committing to ownership.

Cons:

• Higher Monthly Costs – Rent payments may be higher than a traditional lease due to rent credits.

• Risk of Losing Money – If you don’t buy the home, you may forfeit the option fee and any rent credits.

• Market Fluctuations – If home values drop, you could end up overpaying.

• Maintenance Costs – Many rent-to-own agreements require the tenant to cover repairs, which can add unexpected expenses.

Is Rent-to-Own Right for You?

Rent-to-own may be a good option if:

• You need time to improve your credit before securing a mortgage.

• You want to lock in a purchase price in a rising market.

• You’re committed to staying in the home long-term and want to build equity.

However, alternatives like down payment assistance programs or low-down-payment mortgages (FHA, VA, USDA loans) may offer a quicker path to homeownership. If you want to find out if a rent-to-own option is a good choice for you, or if you want to discuss the variety of different financing options that you could potentially use, give our team a call! We would love to help you identify the best route towards buying your next home. 

To learn more about rent-to-own homes, take a look at this article from Redfin.