Rent-to-own agreements can be a great way to get access to electronics, cars, and even homes with more convenience than a traditional purchase. For instance, someone who chooses a rent-to-own home might not need a large down payment or a perfect credit score, which is something that is highly important with a conventional mortgage that isn’t attached to a lease.

If you’ve ever scrolled through rent-to-own homes on websites or apps, it might have made you think this could be the best way to get a home of your own. While this is true, it’s also essential to look at each rent-to-own program on its own (1). Some listings are entirely legitimate and helpful, while others might be scams by nefarious individuals.

Make Sure to Do Your Research

Some people feel like they are throwing their money away when renting. This can make a rent-to-own agreement seem like an excellent idea. In many cases, they can help you get the home you want after an initial leasing period. However, research is needed to ensure you aren’t being taken advantage of.

For instance, some people who jump onto rent-to-own agreements later find that:

  • The advertised house is in much worse condition than expected. It might have mold or water damage or include lead-based paint or asbestos, all of which can be health hazards.
  • The house might be in foreclosure.
  • The house is at an extreme price above the current market value. This might mean you spend way more than you should for the mortgage. You could pay far more than the home is worth, which nobody wants to deal with at any time.

Which Rent-to-Own Programs to Avoid

Making a list of all the programs you should avoid would be difficult since new companies start all the time. However, we can provide you with insight into some of the common warning signs associated with bad rent-to-own agreements. Watch out for programs involving any of the things below, as it is unlikely to be legitimate and worth your time.

Homes Sold by Someone Other Than the Owner

When you see a rent-to-own home listing and find it meets your needs, you might assume that the owner (or a realtor) has posted it. You think it’s legitimate, but that may not always be the case. Before you agree to anything or sign a contract, there are a few things you should check on first.

Ask the person who is offering the rent-to-own property to show you documentation that they own the home. For instance, a tax bill would be a good choice. You can even do some of the digging on your own. In most cases, when you look up an address online, it will provide information about the owner.

If this isn’t listed as the person you are talking to, it might not be the right choice. Ask questions before you decide to move forward if you are still interested. In addition, before you sign on the dotted line, it’s essential to work with a title company to get a title report. This gives you peace of mind since it shows who owns and can sell the home.

Programs with Extremely Confusing Contracts

While many of us get confused with legal jargon, that doesn’t mean you should sign a contract without understanding the terms to which you are agreeing. Some rent-to-own agreements will be more lenient and acceptable for the buyer than others. A real estate attorney can assist you if you need help understanding the contract (2).

Keep in mind, most of these rent-to-own documents will have severe consequences if you miss a payment or send it in late. In the worst case, the contract could be void by doing this only one time. This means that one bad month could mean forfeiting the property, as well as any money you already paid, such as a down payment.

Another thing to be aware of is costs such as option fees. You also deserve to be aware of what happens if something adverse happens during the lease. For example, you should have the option to step away from the mortgage loan after the lease period if you decide you change your mind.

The reason an attorney should be on your side is simple. It can be tough to change or nullify an agreement after you have signed it. A real estate lawyer will know what to look for and make sure you aren’t signing something that might lead to a bad ending.

Homes with Serious Damage and Hazards

Another thing to avoid with a rent-to-own program is a home that isn’t up to par. Unfortunately, determining whether or not this is the case isn’t always easy. While some hazards and forms of damage might be visible to the average person, that isn’t always the case. This is why a professional should do a home inspection before you sign anything.

The majority of agreements will have a contingency for professional evaluations. Even if you need to pay for it, you should not skimp on the home inspection as it will often uncover repairs that need to be made that you might not know about until years down the road. This can also allow you to negotiate or let you choose another program.

Programs That Expect Too Much Money

You may want a home and expect to spend a bit more using a rent-to-own program. However, there’s a difference between a small premium and spending far more than a home is worth (3). Sometimes, it might seem worth it since it feels like the only way to get a home. But it’s better to avoid spending far too much.

The reality is it’s better to keep renting than to pay too much for a home. If a cash buyer wouldn’t spend the same amount on the house, you probably want to walk away, too.

Final Thoughts

Rent-to-own programs can be an excellent way to finance a home when you don’t have a down payment or are experiencing other financial difficulties. First, however, it’s essential to know who you are working with and whether the home is worth the cost. Use the tips above for guidance while choosing to work with a specific program.


Additional Resources

(1) Federal Trade Commission 

(2)Lexington Law 

(3)US News