Rent-to-Own Homes Pros and Cons: Is It Worth It?
Review a list of rent-to-own homes pros and cons. See how this strategy can help you save for a down payment and give you time to strengthen your finances.
Rent-to-own agreements offer a unique path to homeownership, appealing to buyers who aren’t quite ready for a traditional mortgage. This arrangement allows tenants to rent a property for a set period with the option to buy it later. If you’re considering this strategy, you’ll want to carefully weigh the rent-to-own homes pros and cons.
To build our easy-scan pro and con lists, we talked with Maureen Connolly, an agent with 22 years of experience in New York, and Brad Korb, a top-ranked agent in Burbank, California, with 45 years of experience. Their expert insights can help you uncover all the advantages and disadvantages of a rent-to-own real estate purchase.
Step one: Talk to an expert
Connect with a top-rated local real estate agent who can help you navigate rent-to-own options near you.
What is a rent-to-own agreement?
Renting with the intent of owning your own home typically has two options:
1. A rent-to-own deal, also known as a lease option agreement, allows renters the opportunity to purchase a home after a specified amount of time (typically 1-3 years) while living in the property as a tenant. You are not contractually committed to buying the property.
2. A lease purchase agreement requires the renter to buy the home when the lease is up, and it comes with a lot more stipulations — and commitments — than lease option agreements. Therefore, buyers should approach lease purchase agreements with caution.
Because it requires a signed contract and a monumental commitment, we’ll exclusively examine the pros and cons of a lease purchase agreement.
To make sure your lease purchase agreement is solid and fair for both parties, follow these essential steps:
- Consult a real estate attorney: A legal expert can review the contract, explain any complicated terms, and ensure there aren’t any hidden clauses that might put you at a disadvantage as a buyer.
- Get a home inspection: Korb suggests thinking of a rent-to-own agreement “like a long escrow period.” Just as you would with any home purchase, insist on a full home inspection before signing. This way, you won’t be surprised by costly issues down the line, especially since the seller doesn’t have to make repairs.
- Talk to your lender: Discuss your situation with a lender to gauge your chances of securing a mortgage by the time the rental period ends. Knowing your options in advance can save a lot of headaches.
- Get the seller’s disclosures: Your agent can assist you in obtaining any required seller disclosure forms or statements. You should also check for any past insurance claims and confirm the title is clean and free of legal issues.
