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Okay, so a friend called me completely stressed out because she'd been trying to buy a home for eight months. Her credit score was sitting at 640 – not terrible, but not quite where she needed it to be for the loan terms she wanted. She had some money saved, just not enough for the 10% down payment her lender was asking for. And every house she found? Gone within days.
"Casey," she said, "someone told me about rent-to-own. Is that even a real thing, or is it some kind of scam?"
Here's what I told her, and what I want you to know too: rent-to-own is absolutely a real thing, and for some people, it's exactly the bridge they need to homeownership. But – and this is important – it's not right for everyone, and it comes with risks you need to understand before you sign anything.
Let me walk you through everything you need to know about rent-to-own homes in 2025, from how these agreements actually work to whether this might be the right path for your situation.
Think of rent-to-own as a hybrid between renting and buying. You're leasing a home with the potential to purchase it before your lease period ends. Unlike a regular rental where you're just paying for a place to live, a rent-to-own agreement gives you exclusive rights to buy that specific property at a predetermined price.
Here's how it typically works: You find a home you want to buy, but you're not quite ready to close on a mortgage. Maybe your credit needs some work. Maybe you need more time to save for a down payment. Or maybe – and I see this a lot – you're self-employed and your income documentation isn't straightforward enough for traditional lending yet.
Instead of walking away from that house, you enter into a rent-to-own agreement with the seller. You'll pay them an option fee upfront, which secures your right to purchase the home. Then you'll rent the property for an agreed-upon period, usually one to three years. During that time, you're working on whatever you need to work on – improving your credit, saving money, getting your financial ducks in a row.
When your lease period ends, you have the opportunity to buy the home at the price you agreed on back when you signed the lease. That's actually one of the most powerful aspects of these agreements, which I'll dig into more in a minute.
This is where things get crucial, and honestly, where I see people make mistakes. Not all rent-to-own agreements are created equal. There are two main types, and the difference between them is huge.
A lease-option gives you exactly what it sounds like: an option to buy. You rent the home for your agreed-upon period, and at the end, you get to decide whether you want to purchase the property or walk away.
Let's say you sign a three-year lease-option agreement. During those three years, you're living in the home and paying your monthly rent (which is typically higher than market rent – more on that shortly). You paid your option fee upfront. And you've been working hard to improve your credit score and save additional money for your down payment.
Three years later, several things might have happened. Maybe the neighborhood didn't turn out to be what you expected. Maybe you got a job offer in another city. Maybe the home needs more repairs than you realized, and you've decided you don't want to take on that burden. With a lease-option, you can walk away. You'll lose your option fee and any rent credits you've accumulated, which stings, but you're not legally obligated to complete the purchase.
Lease-option agreements typically involve an upfront fee of 2% to 7% of the property's value, with monthly rent credits accumulating toward the purchase price. If you're renting a $250,000 home with a 3% option fee, that's $7,500 you've paid for the option to buy. If you decide not to purchase, that money stays with the seller.
A lease-purchase agreement is binding. Both you and the seller are obligated to complete the transaction when the lease period ends. The seller must sell, and you must buy.
In my experience working with clients, lease-purchase agreements make me more nervous. Yes, they often come with slightly better terms because the seller has more security. You might pay a smaller option fee or none at all. But here's the problem: what happens if, three years from now, you apply for a mortgage and get denied?
With a lease-purchase, you're in breach of contract. The seller can sue you. You'll lose all the money you've paid in rent credits. And you'll likely lose your option fee too. Even if you've done everything right – made every payment on time, maintained the property, worked on your credit – if the mortgage market tightens or if something unexpected happens to your financial situation, you could be facing serious legal and financial consequences.
Federal Trade Commission data shows that while 67% of rent-to-own participants intend to purchase, only 58% actually complete the transaction, which means roughly one in six people who plan to buy end up walking away. If you're in a lease-purchase agreement, that "walking away" becomes a lawsuit instead of just a financial loss.
Let me break down the mechanics of a typical rent-to-own agreement, because understanding the numbers is essential for making a smart decision.
Your option fee is essentially a down payment on your exclusive right to purchase the property. This fee is typically non-refundable, meaning if you don't buy the home, the seller keeps it.
Here's what this looks like in practice: Let's say you're looking at a home valued at $280,000. If the seller wants a 5% option fee, you'll need to come up with $14,000 upfront. That money doesn't just disappear, though. In most agreements, your option fee gets credited toward your down payment or purchase price when you buy the home.
So if you agree on a $280,000 purchase price and you've paid a $14,000 option fee, your effective purchase price becomes $266,000. That's assuming you go through with the purchase, of course.
Your monthly rent in a rent-to-own situation will almost always be higher than market rent. If comparable homes in the area rent for $2,000 a month, you might pay $2,400 or $2,500.
Where does that extra money go? A portion of it – and this should be clearly spelled out in your agreement – gets set aside as "rent credits" or "rent premiums." These credits accumulate in an escrow account, and when it's time to purchase the home, you can apply them toward your down payment.
Let's work through an example with real numbers:
So after three years, you'd have $14,400 in accumulated rent credits, plus your original $14,000 option fee, giving you $28,400 to put toward your purchase. If you were buying the home for $280,000, you'd need to secure financing for $251,600.
Here's the hard part: if you decide not to buy the home, or if you're unable to qualify for a mortgage, you lose both the option fee and all those accumulated rent credits. In this example, that's $28,400.
One of the biggest advantages of rent-to-own – and something I always point out to clients – is the ability to lock in your purchase price from day one.
When you sign your rent-to-own agreement, you and the seller will typically agree on the exact price you'll pay when the lease period ends. This is huge in markets where home values are rising. According to the Joint Center for Housing Studies at Harvard, home prices rose annually in 88 of the 100 largest metro areas in the first quarter of 2025.
Let's say you enter a rent-to-own agreement in early 2025 for a home valued at $280,000. You lock in that purchase price. Over the next three years, the local real estate market stays strong, and by 2028, similar homes in the neighborhood are selling for $320,000. You still get to buy your home for the agreed-upon $280,000, instantly gaining $40,000 in equity.
Of course, this sword cuts both ways. If home values decline during your lease period, you could end up paying more than the home is worth. In my Master’s of Social Work (MSW)[BA1] classes, we talk a lot about risk assessment, and this is definitely one of those calculated risks you need to think through carefully.
Let me be honest with you – I have mixed feelings about rent-to-own agreements. I've seen them work beautifully for some people, and I've watched others lose thousands of dollars and end up worse off than when they started. But when they work, here's what makes them work:
This is probably the most legitimate reason to consider rent-to-own. With approximately 102.7 million people in the United States living in renter-occupied housing as of 2025, making up nearly 31.4% of the total population, many Americans are working their way toward homeownership but aren't quite there yet.
If your credit score is sitting at 620 or 640, you might qualify for an FHA loan, but your interest rate is going to be higher than someone with a 740 score. Over three years, you can take meaningful steps to improve your credit:
I had a client who started a lease-option with a 635 credit score. She set up automatic payments for everything, paid down her credit cards aggressively, and when her three-year lease period ended, her score was at 715. The difference in interest rates saved her nearly $300 a month on her mortgage payment.
One thing I've learned from talking to hundreds of clients is that saving money is hard. Life happens. The car breaks down. The kid needs braces. Your dog eats something he shouldn't and racks up a $1,500 vet bill (yes, that's a specific example from my life).
With a rent-to-own agreement, your higher monthly payment forces you to save. That extra $400 or $500 a month isn't sitting in your checking account where you might be tempted to spend it. It's accumulating in escrow, building up your eventual down payment whether you're thinking about it or not.
You know what nobody tells you when you're buying a house? That you don't really know a neighborhood until you've lived there through all four seasons. You don't know about the train that runs through at 2 AM, or the neighbor's dog that barks constantly, or the fact that every teenager in a three-mile radius uses your street as a drag racing strip on Saturday nights.
With rent-to-own, you get to live in the property before you commit to buying it. You'll experience the house through summer heat and winter cold. You'll learn which windows leak, whether the water pressure is adequate, how the heating system handles a polar vortex. You'll get to know the neighborhood, the schools, the traffic patterns.
If you discover dealbreakers – and assuming you have a lease-option rather than lease-purchase – you can walk away. Yes, you'll lose money, but not as much as you'd lose if you bought the home and then needed to sell it two years later.
While rental asking rents rose 0.4% year over year nationally in February 2025, and single-family home sales in 2024 increased by 3% to about 686,000 units, the housing market remains intensely competitive in many areas.
If you find a home you love in your budget, but you're not quite ready to buy, a rent-to-own agreement locks in that property. The seller can't sell it to someone else during your lease period. In a hot market where homes are going under contract within days of listing, this exclusivity is valuable.
Okay, here's where I need to be really direct with you, because this is the stuff that keeps me up at night when clients are considering rent-to-own agreements.
Let's go back to our example with the $280,000 home. You paid a $14,000 option fee and accumulated $14,400 in rent credits over three years. That's $28,400 you've invested in the purchase of this home.
If you don't buy – whether by choice or because you can't qualify for a mortgage – that entire $28,400 is gone. You have nothing to show for it except three years of housing. Compare that to traditional renting, where you would have paid less per month and kept your savings in the bank where you could access them.
Data shows that 27% of rent-to-own customers complained about high prices, and I understand why. You're paying a premium for flexibility and opportunity, but that premium is only worth it if you follow through with the purchase.
Home values don't always go up. We learned that lesson pretty clearly in 2008, and we're seeing it again in certain markets in 2025. Rents in cities like Austin have dropped 22% from their August 2023 peak, while rents in San Francisco have fallen more than 20% from February 2022 to February 2025.
If you lock in a purchase price at $280,000 and home values drop significantly during your lease period, you could end up paying $280,000 for a house that's now worth $240,000. You're underwater on the property before you even own it.
Here's something that surprises a lot of people: in many rent-to-own agreements, you're responsible for maintenance and repairs. Not just the small stuff like changing air filters and mowing the lawn, but potentially major systems too.
When you rent a normal apartment or house, your landlord fixes the leaking roof or replaces the broken water heater. In a rent-to-own situation, those expenses might fall on you. Before you sign any agreement, read the maintenance clause carefully. Get estimates for likely repairs. Make sure you have enough financial cushion to handle unexpected problems.
According to the Federal Trade Commission, rent-to-own transactions are not specifically regulated by federal law under either the Truth-in-Lending Act or the Consumer Leasing Act. While 47 states have laws regulating rent-to-own transactions, these vary significantly in their protections.
What this means practically is that you're entering a private agreement with a seller, and if something goes wrong, you might have limited legal recourse. New York's Department of Financial Services has raised concerns that lease-to-own and similar agreements may impose harsh terms with little or no safeguards, and these concerns apply in many other states too.
Here's something most people never think about: what happens if the seller has problems during your lease period?
If the seller has a mortgage on the property and stops making payments, the home could go into foreclosure. If the seller has unpaid property taxes, the county could place a tax lien on the property. If the seller files for bankruptcy, your rent-to-own agreement could be thrown into legal limbo.
Before entering any rent-to-own agreement, you should conduct a title search to verify the seller actually owns the property free and clear, or at least understand any existing liens or mortgages. This is where working with a real estate attorney becomes essential, not optional.
Finding legitimate rent-to-own opportunities requires more work than traditional home shopping. Here's my recommended process:
The most reliable way to find rent-to-own properties is through an experienced real estate agent who specializes in these transactions. These aren't typically listed on Zillow or Realtor.com alongside traditional sales. Agents with connections to investors and sellers in financial distress often know about rent-to-own opportunities before they're widely advertised.
Tell your agent exactly what you're looking for: location, price range, your timeline for purchase, and your current financial situation. A good agent will help you understand which opportunities are legitimate and which ones raise red flags.
There are specialized websites that list rent-to-own properties, but I want you to be careful here. Some of these sites are legitimate marketplaces connecting buyers and sellers. Others are, well, let's just say they're not operating with your best interests at heart.
Before responding to any online listing:
Sometimes the best rent-to-own opportunities come through personal connections. Let people know you're looking. Talk to real estate investors at local meetup groups. Mention your interest to friends and family who might know homeowners considering this option.
Property owners who are struggling to sell their homes through traditional methods might be open to rent-to-own arrangements they haven't advertised publicly. These private deals can sometimes offer better terms because there's less competition.
Before signing any rent-to-own agreement, treat this like you would a traditional purchase. Get a professional home inspection. Research comparable sales in the neighborhood. Drive through the area at different times of day and different days of the week.
Look at local development plans – is there a new highway coming? A school closing? New commercial development? These factors will affect your property value over your lease period.
And please, please get a second opinion on the agreed-upon purchase price. Just because a seller says their home is worth $280,000 doesn't make it true. Pull recent sales data for comparable homes. Consider getting a professional appraisal before you sign the agreement.
If you decide to move forward with rent-to-own, your agreement should clearly spell out every aspect of the arrangement. Here are the non-negotiable elements:
The agreement should state exactly how the purchase price is determined. Is it locked in at a specific dollar amount? Does it float based on market conditions at the end of the lease? If there's any formula or appraisal process involved, it should be described in detail.
Get this part wrong, and you could end up arguing about the purchase price when it's time to buy, potentially torpedoing the entire deal.
How much is the option fee? When is it due? Is it refundable under any circumstances (probably not, but check)? Does it get credited toward your down payment or purchase price? Make sure these details are crystal clear.
What portion of your monthly rent counts as a rent credit? How are these credits held – in escrow, by the seller, by a third party? Can you make additional payments that go directly to rent credits? What happens to these credits if you're late on a rent payment?
I once reviewed an agreement where a single late payment, even by just one day, forfeited all accumulated rent credits. That's predatory, and you should run away from any agreement with terms like that.
How long is your lease period? Can you purchase earlier if you're ready? Can the seller or buyer extend the lease if needed? What happens at the end of the lease period if you haven't closed on the purchase yet?
Who handles what? Be specific. Who pays for routine maintenance? Who covers major repairs? What about property taxes and insurance during the lease period? If something breaks, who has the authority to hire contractors, and who pays the bill?
What constitutes a default by either party? What are the remedies and penalties? If you miss a rent payment, do you get a grace period? If the seller fails to maintain clear title, what are your options?
These default terms are where rent-to-own agreements can become really problematic, so read this section multiple times and make sure you understand every scenario.
Can you transfer your interest in the rent-to-own agreement to someone else? This might matter if your life circumstances change dramatically during the lease period.
If you're seriously considering rent-to-own, here's how to set yourself up for success:
Don't just think about your monthly rent. Factor in:
I mentioned this earlier, but it's important enough to repeat. Use your lease period to improve your credit score as much as possible. According to 2024 data, 52% of homeowners would need a mortgage rate below 6% to feel comfortable buying a home, and your credit score directly impacts the interest rate you'll qualify for.
Check your credit report from all three bureaus (you can do this for free annually at AnnualCreditReport.com). Dispute any errors. Set up automatic payments for every bill. If you have credit card debt, prioritize paying it down. A credit score improvement from 640 to 720 could save you tens of thousands of dollars over the life of your mortgage.
Even though you're accumulating rent credits, you should be saving extra money on the side. You'll need funds for:
If your accumulated rent credits and option fee total $28,400 and you need a 10% down payment on a $280,000 home, you're exactly at your target. But what about the $7,000-$10,000 in closing costs? You need additional savings to cover that gap.
Don't wait until month 35 of your 36-month lease to start talking to lenders. Get pre-qualified six months before your lease ends. This gives you time to address any issues that come up. Maybe your lender wants to see a different employment situation. Maybe you need to pay off a specific debt. Maybe there's an error on your credit report that needs to be corrected.
Finding out you don't qualify for a mortgage two weeks before you're supposed to close is a nightmare scenario. Give yourself buffer time.
Rent-to-own regulations vary significantly by state. Forty-seven states have specific laws regulating rent-to-own transactions, each with different requirements and protections.
Some states require specific disclosures. Some limit the fees that can be charged. Some dictate how rent credits must be handled. California's Karnette Rental-Purchase Act, for example, makes it illegal for rent-to-own businesses to enter agreements where total payments exceed 2.25 times the cash price.
Before entering any rent-to-own agreement, research your state's specific laws. Your state attorney general's website usually has consumer protection information about these transactions. Look for state-specific requirements around:
Before committing to rent-to-own, make sure you've explored these alternatives:
FHA loans require just 3.5% down if your credit score is 580 or higher. If you have a 500-579 credit score, you'll need 10% down. These loans are designed for buyers with less-than-perfect credit or smaller down payments. The mortgage insurance is higher than conventional loans, but you might get into a home sooner without the risks of rent-to-own.
Many states, counties, and cities offer down payment assistance for first-time buyers. These programs provide grants or low-interest loans to help cover your down payment and closing costs. You might qualify even if you don't think you do – eligibility requirements vary widely by program and location.
If your main goal is time to improve your finances, consider a traditional lease while you work on your credit and savings. You'll pay less per month than in a rent-to-own situation, and your savings will remain accessible if your plans change. It's less exciting than locking in a specific home, but it's also lower risk.
Some sellers are willing to finance the purchase themselves, essentially becoming your lender. You make monthly payments to the seller instead of a bank. This can be a good option if you can't qualify for traditional financing, though you'll want an attorney to structure the deal properly and ensure you're getting fair terms.
I cannot stress this enough: do not enter a rent-to-own agreement without legal representation. This is not a place to cut corners to save a few hundred dollars. The potential financial consequences of a poorly structured agreement are too serious.
Find an attorney who specifically has experience with rent-to-own transactions. They should review the agreement before you sign anything. They'll look for problematic clauses, ensure your interests are protected, and explain implications you might not have considered.
A good attorney will charge you $500-$1,500 for this service. It's worth every penny.
While you can find rent-to-own properties on your own, an experienced agent can help you evaluate whether the deal is fair. They'll pull comparable sales data, help you negotiate terms, and potentially identify red flags you might miss.
Agents typically work on commission, so their fee usually gets built into the purchase price when you eventually buy the home.
HUD-approved housing counselors provide free or low-cost services to help potential homebuyers understand their options. They can review your finances, help you create a realistic budget, and connect you with reputable lenders.
These counselors aren't trying to sell you anything – they're genuinely there to help you make informed decisions.
After all this information, you might be wondering: should you actually do this?
Rent-to-own can be a smart choice if:
Your credit score is in the 600-680 range, and you're confident you can improve it significantly with focused effort over 1-3 years.
You have some money saved but not enough for a traditional down payment, and you're disciplined enough to handle higher monthly payments while also saving additional funds.
You've found a specific home you love in an area you're committed to, and you're worried about being priced out if values continue rising.
The local market is showing strong appreciation trends, and locking in today's purchase price would likely save you money compared to waiting to buy traditionally.
You have stable income and employment, giving you confidence that you'll qualify for a mortgage when your lease period ends.
You've found a lease-option (not lease-purchase) agreement, so you maintain flexibility to walk away if circumstances change.
The agreement terms are reasonable – option fee is 5% or less, rent credits are clearly defined and protected, purchase price is at or near current market value.
Rent-to-own is probably not right for you if:
Your credit score is above 680 and you could qualify for an FHA or conventional loan now with decent terms.
You have enough saved for a down payment and closing costs on your target price range.
Your employment or income is uncertain, making it risky to commit to above-market rent payments for multiple years.
You're not sure where you want to live long-term, or there's a reasonable chance you might need to relocate during the lease period.
The only agreements you're finding are lease-purchase (requiring you to buy), or the terms seem unreasonable compared to current market conditions.
You're uncomfortable with the financial risk of potentially losing your option fee and rent credits if things don't work out.
I've been working in mortgage and lending long enough to see people make great decisions and terrible mistakes with rent-to-own agreements. The difference usually comes down to whether they approached the arrangement strategically or desperately.
If you're considering rent-to-own, be honest with yourself about why. If it's because you're impatient and don't want to wait to improve your finances the traditional way, that's a red flag. If it's because you've done the math and this genuinely provides a path to homeownership that makes financial sense, that's worth exploring.
Remember that homeownership isn't just about having a place to live. It's about building equity, creating stability, and making a smart financial investment. A rent-to-own agreement should move you closer to these goals, not farther away.
Take your time. Read everything carefully. Ask questions until you understand every aspect of the agreement. And please, work with professionals who can protect your interests.
Here in Louisville, I see people every day who are working toward homeownership despite obstacles. Some of them take the rent-to-own path successfully. Others find different routes that work better for their situations. The key is making informed decisions based on your specific circumstances, not what someone else did or what sounds easiest.
You've got this. Just take it one step at a time, and don't skip the due diligence.
This is actually a great question that more people should ask. Most lease-option agreements allow you to exercise your purchase option at any point during the lease period, not just at the end. If you qualify for a mortgage after one year instead of three, you can go ahead and close on the purchase. You'll apply your accumulated rent credits up to that point toward your down payment or purchase price.
However, check your specific agreement carefully. Some sellers include early purchase penalties or require that you pay the full three years' worth of rent credits even if you buy early. These terms aren't necessarily unfair – the seller is banking on receiving above-market rent for the full lease period – but you need to know about them upfront.
If you're thinking you might be ready to buy sooner than your lease period, negotiate this flexibility into your agreement before signing. You might offer to pay a slightly higher option fee in exchange for the right to purchase early without penalties.
Here's where things get tricky, and honestly, this is something you need to spell out clearly in your lease agreement. Generally speaking, you shouldn't make major improvements or renovations to a property you don't own yet.
Why? Because if you don't end up purchasing the home, you've just spent your money improving someone else's property. That new kitchen you installed for $20,000? That stays with the house, and you have no claim to recover that cost.
Some rent-to-own agreements include clauses about improvements. You might be allowed to make changes with the seller's approval, and those improvements might increase the agreed-upon purchase price. Or the agreement might strictly prohibit any modifications without written consent.
If you're planning significant improvements, consider writing a clause into your agreement that addresses this directly. For example, you might negotiate that if you install a new roof for $12,000, that amount gets credited toward your purchase price. Or you might agree that you'll restore the property to its original condition if you don't purchase.
For minor cosmetic changes like painting walls or updating light fixtures, most sellers won't object. But always get permission in writing before you start any project.
This is one of those scenarios nobody wants to think about, but it's worth addressing. The answer depends on how your agreement is structured and your state's laws.
Generally, a properly drafted rent-to-own agreement should survive the seller's death or divorce. The obligation to sell transfers to the seller's estate or becomes part of the divorce settlement. However, these situations can create complications and delays.
If the seller dies, you might end up negotiating with heirs who have different ideas about the arrangement. If the seller divorces, one spouse might want to honor the agreement while the other wants to sell to a different buyer at a higher price.
This is why I strongly recommend recording your interest in the property with your county's register of deeds. This puts the world on notice that you have a legal claim to purchase the property, which can protect your position if the seller's situation changes. Your real estate attorney can help you with this process – it typically involves filing a memorandum of option or similar document.
Also, before entering any rent-to-own agreement, consider running a title search to check for existing liens, judgments, or other encumbrances that could affect the seller's ability to transfer clean title when the time comes.
Property tax responsibility in rent-to-own agreements varies based on how your contract is structured. In most cases, the seller remains the legal owner during the lease period, so technically they're responsible for property taxes. However, many rent-to-own agreements shift this obligation to the tenant-buyer.
If you're responsible for property taxes, this should be explicitly stated in your agreement. Make sure you understand:
Property taxes can increase significantly over a multi-year lease period, especially if local governments raise tax rates or if your property's assessed value increases. Budget for potential increases – a safe estimate is 3%-5% annual growth in your property tax bill.
One more consideration: if the seller remains responsible for property taxes but doesn't pay them, the county can place a tax lien on the property or even foreclose. This could jeopardize your rent-to-own arrangement even if you've been making all your payments faithfully. This is another reason why regular title searches during your lease period are a smart protection.
This is where the difference between lease-option and lease-purchase becomes critically important. With a lease-option, yes – you can walk away. You'll lose your option fee and rent credits, but you're not legally obligated to complete the purchase.
With a lease-purchase agreement, you're contractually obligated to buy the home. Walking away means you're in breach of contract, and the seller can sue you for damages. These damages might include the difference between your agreed-upon purchase price and what they eventually sell the home for, plus their costs associated with the transaction, legal fees, and potentially other remedies.
That said, there are sometimes ways to exit a lease-purchase agreement:
If you're facing a situation where you need to exit a lease-purchase agreement, consult with a real estate attorney immediately. Don't just stop paying and walk away – that's the worst approach and will lead to the most serious legal and financial consequences.
The lesson here: be very, very careful about entering lease-purchase agreements. They provide you with less flexibility, and life has a way of throwing unexpected curveballs.
This is absolutely essential to get right, because you're locking in a purchase price that you'll pay one to three years in the future. Here's how to evaluate whether the price is reasonable:
First, pull recent sales data for comparable homes in the same neighborhood. Look for properties that are similar in size, age, condition, and features. What have they sold for in the past 3-6 months? Real estate websites like Zillow and Redfin provide this information, but your real estate agent can access more detailed MLS data.
Consider getting a professional appraisal before you sign the rent-to-own agreement. Yes, this costs $300-$500, but it's worth it for peace of mind. An appraiser will evaluate the home's current market value using objective criteria.
Look at market trends in your area. Are home values generally rising, stable, or declining? Recent data from Harvard's Joint Center for Housing Studies shows home prices rose annually in 88 of the 100 largest metro areas in the first quarter of 2025, suggesting an appreciating market in most locations. If values are rising 3%-5% annually, locking in today's price makes sense. If values are flat or declining, you need to negotiate more carefully.
Consider the condition of the home. If it needs $30,000 in repairs and updates, factor that into your evaluation. The purchase price should reflect the property's current condition, not what it would be worth after renovations.
Finally, think about whether the agreed-upon price gives you some equity from day one. If comparable homes are selling for $280,000 and you're agreeing to pay $280,000 in three years, are you getting a fair deal? Maybe, if market appreciation over three years will be significant. But you might negotiate for a purchase price of $270,000 to give yourself a buffer.
This is a scenario that catches people off guard. You've worked hard to improve your credit over your lease period. You've saved additional money. Your lease is ending, and you're excited to buy the home. Then you apply for a mortgage and get approved, but the interest rate is higher than you hoped.
Maybe mortgage rates have increased significantly since you signed your rent-to-own agreement. Current housing market data shows that 52% of homeowners would need mortgage rates below 6% to feel comfortable buying, but what if rates are now at 7.5%?
If you have a lease-option agreement, you have choices. You could:
If you have a lease-purchase agreement, you're in a tougher spot. You're obligated to buy regardless of interest rates. Your options include:
This is why I always tell clients to run mortgage scenarios at different interest rates before entering rent-to-own agreements. If rates increase by 1%-2%, can you still afford the monthly payment? If not, you might be setting yourself up for trouble.
Unfortunately, yes. Rent-to-own arrangements can attract predatory operators who target people with financial challenges. Here are red flags that should make you walk away:
Pressure to sign quickly. Legitimate deals don't require immediate decisions without time for due diligence. If someone is pushing you to sign today or lose the opportunity, that's a warning sign.
Reluctance to allow inspections or attorney review. Any seller who won't let you have the home inspected or have an attorney review the agreement is hiding something.
Terms that seem too good to be true. If the purchase price is significantly below market value, or the option fee is surprisingly low, or the rent is unusually reasonable, ask yourself why. What aren't you being told?
Seller doesn't actually own the property or has serious title issues. Always conduct a title search before signing. Make sure the seller has legal authority to enter into this agreement.
Agreements that are vague or missing key terms. If the contract doesn't clearly spell out the purchase price, option fee, rent credits, maintenance responsibilities, and default terms, don't sign it.
Seller requires all option fees and rent credits to be paid in cash with no receipt. Legitimate transactions create paper trails. Everything should be documented, and payments should go through proper channels.
Seller has multiple properties in rent-to-own arrangements. Some investors run operations where they never intend to actually sell the homes. They collect option fees and above-market rent from multiple families, then find reasons to cancel the agreements before purchase.
According to consumer protection officials in Kansas, rent-to-own buyers who spend time and money fixing properties face significant risk because these investments could be lost if buyers don't end up getting title to the home. These officials specifically warn about the higher risk of fraud in these transactions.
If something feels off, trust your instincts. It's better to walk away from a questionable deal than to lose thousands of dollars to a scam.
Insurance responsibility is another area where you need crystal-clear terms in your agreement. During the lease period, someone needs to maintain hazard insurance on the property. The question is: who?
In many rent-to-own agreements, the seller maintains homeowners insurance as the legal owner of the property, but the tenant-buyer might be required to maintain renter's insurance to cover their personal belongings and liability.
However, some agreements require the tenant-buyer to carry homeowners insurance even though they don't technically own the property yet. This is more common in lease-purchase arrangements where you're committed to buying.
Make sure your agreement specifies:
That last point is particularly important. If there's a fire or major storm damage during your lease period, you need to know whether insurance proceeds will be used to repair the property or how they'll be handled in relation to your eventual purchase.
Also, be aware that insurance companies may have concerns about rent-to-own arrangements. Some might not provide coverage, or they might charge higher premiums due to the unique nature of the situation. Get insurance quotes before finalizing your rent-to-own agreement to make sure coverage is available at a reasonable cost.
One of the potential benefits of rent-to-own is building positive credit history, but this only works if your rent payments are reported to credit bureaus. Unfortunately, many rent-to-own arrangements don't include credit reporting.
Traditional mortgage payments are always reported to credit bureaus, which is one reason homeownership helps build credit. But rent payments, including rent-to-own payments, often aren't reported unless someone specifically arranges for this.
If building credit is one of your goals, ask about this explicitly before signing your agreement. The seller might be willing to report your payments to credit bureaus, especially if you offer to cover any associated fees.
Alternatively, you can use third-party rent reporting services like RentTrack, LevelCredit, or Rental Kharma. These services will report your rent payments to one or more credit bureaus, usually for a monthly fee of $5-$10. Not all credit scoring models consider rent payments, but some do, and it certainly doesn't hurt to have this positive payment history on your credit report.
Beyond rent payments, use your lease period to build credit through traditional methods: make all other payments on time, keep credit card balances low, avoid applying for unnecessary new credit, and maintain a mix of credit types if possible.
Remember, the ultimate goal is qualifying for a mortgage with good terms when your lease period ends. Whether your rent-to-own payments specifically build credit is less important than your overall credit profile at that point.
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