Rent-to-own condos: Entry to homeownership

If you're interested in buying a condo, rent-to-own options can let you try out a specific home while you build up your savings and credit. Learn how rent-to-own condos work, who they suit, and how to find condos for rent to own.

How does a rent-to-own condo work?

A rent-to-own program lets you rent a condo with the chance to buy it later. These plans often cover condos, apartments, and other types of houses.

How much is a rent-to-own condo? You'll pay a bit more rent each month, and the extra cash is applied toward a future down payment. There’s also an up-front fee, normally between 1% – 7% of the home’s worth, which gives you the right to buy the property later.

The agreement will spell out the rental period, typically 1 – 3 years. During this period, you can work on boosting your credit score or saving for a down payment.

If you choose not to buy the home after the lease ends, you usually lose the extra money you’ve paid. That’s why it’s helpful to make sure this arrangement fits your long-term plans before committing to it.

Who should consider a rent-to-own condo program?

Rent-to-own deals are available for many types of homes, including condos and apartments.

Here are a few signs condos for rent-to-own might be a good choice for your situation:

• You need more time to boost your credit. Better credit helps you qualify for a mortgage and get a lower interest rate, but it can take months or years to make improvements to your credit. A rent-to-own agreement gives you time to improve your credit score before applying for a mortgage.
• You need more time to save for the down payment. If building up savings for a down payment has been difficult, rent-to-own gives you time to save more money while living in the property you plan to buy.
• You already know where you want to live. If you’ve found a condo in just the right spot but aren’t ready to buy yet, rent-to-own can lock in the price and let you take time to complete the purchase. If the neighborhood feels like a good fit and you can picture yourself living there long-term, this choice might be right for you.

Types of rent-to-own contracts

You’ll come across two main types of rent-to-own contracts: the lease-option agreement and the lease-purchase agreement. Each has its pros and cons. A good real estate agent and attorney can help make sure the agreement lines up with what you want and can afford.

Lease-option agreement

With a lease-option contract, you agree to rent the property for a specific time and have the right to buy it or not when the lease ends. If your plans change or the condo isn’t the right fit, you can walk away.

This type of agreement is typically good for people who:

• Are still working on improving their finances.
• Are not sure they want to fully commit to a specific condo.
• Need more time to decide or save money.
• Aren’t sure if the neighborhood or city fits their lifestyle.
• Want to keep their options open.

Lease-purchase agreement

A lease-purchase agreement is a rental contract that obligates the tenant to buy the condo at the end of the lease. This type of agreement is typically best for people who:

• Are clear about their future plans.
• Want to lock in a price in an appreciating real estate market.
• Know the exact condo they want to buy.
• Love the neighborhood and area the condo is in.
• Feel confident they can qualify for a mortgage at the end of the lease.

Pros and cons of a rent-to-own condo

Is a rent-to-own condo a good idea? Let’s dive into what’s great and not so great about rent-to-own agreements to help you figure out if it could work for you.

Pros

• More time to save for a down payment and improve your credit before you need to apply for a mortgage.
• Many contracts use part of your rent to reduce the purchase price.
• You get to live in the condo you plan to buy.
• You can set the purchase price when you sign the agreement, which saves you money.
• With a lease option, you don’t have to buy the home if you change your mind.

Cons

• Deciding not to buy could forfeit your option fee and any rent credits.
• If the home’s value changes, the set price might not be fair when it’s time to buy.
• With a lease-purchase agreement, you may need to buy the home even if its value drops.
• You’ll still need to qualify for a mortgage when the lease finishes.

How do I find rent-to-own condos near me?

If you’re looking for a rent-to-own condo, start by researching neighborhoods where you’d like to live. Search on websites like Redfin using keyword filters such as "lease option" or "rent to own."

Look for condo buildings that interest you and ask about available units, homeowners association (HOA) rules, and recent listings. You also can reach out to condo owners directly. Some may be open to a rent-to-own arrangement even if their condo is not listed publicly.

An experienced real estate agent can search the multiple listing service (MLS) or reach out to people in their network to find unlisted opportunities. They also can guide you through the next steps if you find a condo that is a good match.

There also are rent-to-own programs like Divvy and Landis. Most programs have their own qualification criteria, rules, and fee structure.

The bottom line: Rent-to-own can be a smart step toward homeownership

If you plan to buy a home but aren’t quite ready to qualify for a mortgage, rent-to-own programs can be helpful. Rent-to-own condo programs can let you live in a home before you fully commit to buying it. This can give you time to build your credit or savings, lock in a purchase price, and get to know the neighborhood. Rent-to-own programs typically require up-front fees, and you have to qualify.

When you’re ready to buy a home, apply for a loan today with Rocket Mortgage.