How to Rent-to-Own a Home With Bad Credit

Are you worried that your credit score might hold you back from owning a home? You’re not alone. More than 70% of renters in the U.S. report wanting to own a home, but only 45% say they can qualify to buy a house where they live.

Many of these renters, like you, are looking for alternate paths to homeownership, even with less-than-ideal credit. A rent-to-own agreement could be your gateway to buying a home, allowing you to rent now and purchase later, often regardless of a low credit score.

This guide will help you understand how to navigate the rent-to-own process with bad credit and explore your options to transition from renting to owning.

What credit scores are required to buy a house?

When you’re considering buying a home, your credit score is a key factor lenders look at. Here’s what you typically need for various loan types:

FHA loans: Minimum credit score of 580 for 3.5% down payment; 500-579 for 10% down.
VA loans: No set credit score requirement, but lenders typically prefer 620+.
USDA loans: Generally require a score of 640 or higher for streamlined processing.
Conventional loans: Often require a minimum of 620, with better rates for scores above 720.
Other options: Look into first-time homebuyer programs, closing cost and down payment assistance, and state homebuyer assistance options, which may have flexible credit requirements.

Can I rent-to-own a home with bad credit?

Rent-to-own programs can be a beacon of hope for those with less-than-perfect credit. To qualify, here’s what most rent-to-own sellers or companies look for:

Money for a down payment or option fee: This is an upfront commitment that typically goes toward your future home purchase.
Acceptable income and employment history: Proof that you have a steady income to make regular payments.
Positive rental history: Indications that you are a reliable tenant.
Favorable on-time payment history: A track record of paying your bills on time.
People with a financial plan: Demonstrating that you’re working toward improving your financial situation.

How does rent-to-own work with bad credit?

The basic process of a rent-to-own agreement involves renting the property for a set period, during which you have the option to buy it before the lease expires. This arrangement often allows you to lock in a purchase price at the start, potentially benefiting from price appreciation over time.

Meanwhile, a portion of your rent payments typically contributes toward the purchase price, helping you build equity gradually. This setup can be particularly advantageous if you need time to improve your credit before securing a mortgage.