Rent-to-Own Homes: How It Works

There are downsides, too, of course.

The most obvious is that it takes a longer amount of time to become the official owner of a rent-to-own home, unlike with the more usual mortgage arrangement, where you’re still considered the legal owner of a home even if a bank helped you buy it. That means that the usual terms and conditions of a standard rental agreement can apply.

“Even in a rent-to-own situation, the landlord retains full rights as a landlord and, as such, may evict a tenant for nonpayment according to local ordinances,” McCormack says.

If the housing market goes the other way than you hoped and the market value of the rent-own-property actually drops, you’d still be responsible for buying the home at the negotiated price, which could be a much worse deal than at the start of the lease term.

“As the purchase price is pre-negotiated, you might end up paying more than the house’s worth if its value decreases during the rental period,” Ludwinek says. “The purchase price of the home is locked in at the start of the agreement. The buyer will benefit if the home appreciates in value, however, if the home depreciates the buyer will still be required to pay the originally negotiated price.”

And the time it takes for your rent-to-own contract to play out also means you could be vulnerable to financial fluctuations that ultimately make buying the home impossible for you.

“Interest rates will have an effect when you go to obtain financing for purchasing the property at the end of the lease,” Ludwinek says. “You may find that interest rates went up significantly from when you entered the agreement and you may no longer be able to qualify for financing at the higher rates. This may result in you having to walk away from the home, losing your downpayment.”

And though the landlord’s technically the person in charge of paying property taxes and, in most contracts, maintenance and repair, as a buyer, you’ll often find yourself taking the lead on keeping the place up, for all practical purposes.

“As the buyer is vested as a soon-to-be owner, they will inherit any issues that arise with the home, and it is in their best interest to have it repaired to their liking,” Ludwinek points out.

And, finally, among the most potentially jarring cons of a rent-to-own program is that you’re not just at the mercy of your own financial circumstances, you’ll feel the fallout of your landlord’s, too.

If your landlord loses the home to foreclosure, for example, you’re suddenly going to be dealing with a whole new owner who doesn’t necessarily have to abide by the terms of an rent-to-own agreement he or she didn’t sign up for.

Different types of rent-to-own contracts

Rent-to-own agreements can vary a lot, from the amount of the option fee, the terms of the end of the lease and lease option, who pays the closing costs and property taxes, and so on. There are a lot of unforeseen circumstances you want to protect yourself against, so you’re definitely going to want to hire a real estate attorney who’s familiar with rent-to-own contracts.