The Cons of Rent-to-Own Homes

For would-be buyers who lack sufficient credit to secure a mortgage or who don’t have enough money saved for a down payment, a rent to own property sounds like a dream come true. But before you get too excited by the prospect of living in your dream home, carefully consider these potential negatives.

Tenants and sellers first agree on a sale price and the tenant pays the seller an option fee at the beginning of the lease for the right to purchase the home at the lease’s end. This fee typically runs about 1 to 5 percent of the sale price, and it is nonrefundable if the tenant doesn’t consummate the sale. Rent-to-own tenants also pay higher-than-market rent during the lease, also forfeited if the sale doesn’t close. Also, if the tenants pay the rent late, the agreement is terminated.

While sellers increase their pool of potential buyers by considering renting to own, they also trust that the tenants will save enough during the lease term to afford the mortgage. They also count on adequate credit, too.

Rent-to-own arrangements favor sellers because tenants often can’t complete the sale. This may be a conscious choice if the tenants find that they don’t like the home, or the neighborhood, or find the upkeep requirements unattractive; in these cases, even though they lose the option fee and the rent premium, that may wind up far less costly than purchasing a home not within their means or to their liking.

Finally, should the price of the home change significantly over the course of the lease, then one of the parties may wind up unhappy. Speak with an attorney before agreeing to a rent-to-own deal. While they can be beneficial for both parties, they may wind up being a waste of time, effort, and money.