Best Rent-to-Own Programs for Home Buyers

Are you dreaming of buying a home but your financial situation is holding you back? You’re not alone. While the traditional path to homeownership may work for most buyers, there are a few alternatives that suit the needs of those who need a little extra help.

With rent-to-own, you have the opportunity to lease a home and buy it before your lease ends. This gives you time to build up your credit and qualify for a mortgage loan so you can buy the home of your dreams.

There are many rent-to-own programs to choose from. In this guide, we’re covering the best ones, as well as how to avoid the most common scams.

Why Rent-to-Own?

Rent-to-own agreements essentially give you the ability to buy a house and pay for it later. For example, through what’s known as a seller carry, you can buy now and pay for it over time. In this case the seller acts as a bank, so your loan payment goes directly to him. This can be a smart option if your current financial situation prevents you from securing traditional financing.

With rent-to-own, you will negotiate the terms with the property owner to determine the length of your lease, the purchase price of the home, your rent payments, and the conditions of your agreement. When or before your lease ends, you can buy the home outright, assuming you are able to secure a mortgage loan before then.

Do I qualify to rent to own? Take our pre-qualification quiz.

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Rent to Own Misconceptions

Before you jump on rent-to-own, it’s worth uncovering the most common misconceptions about this option. This will help you avoid getting taken advantage of, or otherwise not being able to buy the home at the end of your agreement.

Are rent to own programs legitimate or worthwhile? That depends. It all comes down to you finding the right program and settling on a contract that serves your best interests.

Here are the most common misconceptions about rent-to-own home buying:

Rent-to-own is the best way for buyers with bad credit to buy a home.

Rent-to-own involves seller financing.

Rental payments are applied to the down payment on the home.

If the tenant doesn’t buy, they get a portion of their money back.

Buyers earn equity during the leasing period.

While there can be some truth to all six points above, it varies by option and contract. To avoid scams, be sure to understand the opportunity and associated documents before proceeding with any type of offering.

Avoiding Scams

Many prospective home buyers ask, “Are there any legitimate rent to own home programs to buy a house?” Ultimately, the answer is Yes, though not all programs are created equal. There are some rent-to-own scams to look out for.

Rent-to-Own Scams Warning Signs:

Your Agreement Sounds Too Good to be True. Scam artists prey on idealistic home buyers that are looking for the perfect deal. If your agreement sounds too good to be true, it probably is.
You Have a Bad Feeling About the Seller. Trust your instincts. If a seller gives you a suspicious first impression, or tries to manipulate you into settling on terms or signing the lease before you are ready, then this could be a sign they are trying to pull one over on you.
The Home is Unreasonably Overpriced. With some research, you can determine the true cost of the home based on current market prices. Your agent can assist you in this as well. If a buyer over values their home, this may not be a good option for you.
The Lease Contract is Ambiguous. Don’t sign anything you don’t understand. Some scammers use “legalese” to trick you into agreeing to terms that aren’t in your best interests. Make sure you have the assistance of a qualified professional like a Century 21 Northwest agent to review the contract with you!
The Seller Includes Additional Fees. Examine your lease agreement to see if the seller has included any hidden fees. These can add up, resulting in you paying more than the home is worth.
One-sided Agreements. The seller can get out of the agreement but you can’t.

To be sure you are protected, we highly recommend having a licensed Realtor review any real estate documents before you sign.

Understanding How Rent-to-Own Programs Work

The rent-to-own process starts with you finding the right rent-to-own program to suit your needs. With the help of a licensed agent, you can find the perfect home and negotiate the terms of your agreement so you can buy the house when you are ready.

Rent-to-own programs are helpful to anyone who is going through financial hardship and can’t qualify for traditional lending, but who has taken steps to recover their credit and save up for their down payment.

All rent-to-own programs include their own terms, so be sure to do your research and discuss your options with a trusted Realtor. For example, some programs require that you have not had any late rent payments in the last six months, and that you have saved 5 percent of the purchase price towards your down payment.

Best Rent-to-Own Programs

In choosing the best rent-to-own program, you will want to consider your credit situation, your ability to save for the down payment of the home, your ability to make regular rent payments, and your goals for homeownership. The reality is that you can buy a home with poor credit, but it takes finding a legitimate program, and having a short, midterm, and long term strategy to make sure you are protected.

Here are the top rent-to-own options for you to consider:

Right To Purchase Program

One program is the Right to Purchase program offered by Home Partners of America. With this option, you are offered “three to five years* of rent certainty with an initial financial commitment of just one year.” Here’s how it works:

Apply: Prospective tenants fill out a Pre-Qualification Application, along with a full credit and background check.
Find a Qualified Home. You will then work with a realtor to find an approved property. Then, Home Partners will attempt to purchase the home. Click here for their Comprehensive Property Guide.
Home Partners Buys the Home and You Lease the Home. You will be required to sign a one year lease as well as the Right to Purchase Agreement.
You Buy the Home. You lease the home and have the right to buy it before the lease ends.

Option To Purchase Program

An Option to Purchase program is a contract that allows you, the buyer, the exclusive right to purchase the property. Typically the tenant will sign both a customary rental lease agreement and an agreement that provides him/her the first right of refusal should a seller decide to sell. It might also have language that discusses how the price will be determined should the sale occur. The main protection provided for the tenant is that once the terms are agreed to, the seller cannot sell the property out from under him/her without him first having that “Option” to buy.

Seller Carry Program

A Seller Carry (or seller carry back) Program is an owner-provided financing option. This option – “carrying back a note” – can be beneficial to both the buyer and seller.

Sellers tend to take this route when they have trouble finding qualified buyers. In the case of restricted lending options, the seller can “carry back” the note on their own house. Here’s how this works:

The buyer and seller sign a promissory note saying that the buyer promises to pay a certain amount, at a certain interest rate, for a specific amount of time – only instead of paying to a bank, the buyer makes payments to the seller. The seller in this case is acting as the bank.
The seller transfers the title to the buyer and collects monthly rent payments. If the tenant stops making payments, then the seller can take the property back and try to sell the property again.

Lease-Purchase Agreement

A Lease-Purchase Agreement is the most popular rent-to-own program option. It combines the main components of a traditional purchase contract with a lease purchase agreement. The contract covers the purchase price of the home, the length of the agreement and gives the buyer and seller all of the typical protections afforded in the standard purchase contract. The contract will also refer to a pre-possession agreement which is usually handled as an addendum to the contract. It will cover how the buyer and seller will act prior to the actual sale. It will typically include a prepossession monthly fee (rent), and who is responsible for maintenance, insurance, and any other expenses.

Simply put, a lease-purchase purchase agreement is a regular purchase contract that includes an agreement for a tenant to move in, make improvements, and build equity on a home, before it is actually purchased.

Work with a Licensed Agent to Find the Right Rent-to-Own Program

Taking the lease-to-own route is a serious decision that requires proper research and preparation. To avoid being taken advantage of, it’s best to work with a licensed agent to find a legitimate rent-to-own program.

At Century 21 Northwest Realty, we assist prospective homeowners in navigating the rent-to-own process, negotiating the terms of their agreement, and closing on the home of their dreams. If you need help finding the best program for you, partner with a trusted rent to own agency.

Rent to Own Programs: Best Options for Prospective Homeowners