How to find rent-to-own homes: A guide

A rent-to-own home can be a helpful option for those who want to buy a home but haven’t been able to save up enough for a down payment. With this type of arrangement, you rent a home for a certain amount of time with the intention of buying it at the end of that period. During this time, you pay a slightly higher rent so that a portion of each payment can go toward building a down payment. Here, we’ll cover how these agreements work, the pros and cons of this option, and how to find a rent-to-own home.

How rent-to-own programs work

Rent-to-own programs offer an alternative path to homeownership for those who have found a home they want to buy but aren’t ready to make a down payment. Before a rent-to-own agreement is signed, the buyer and seller negotiate the terms of the deal, including the purchase price, monthly rent, and length of the lease. You’ll also decide which party will be responsible for maintenance and repairs and whether the buyer would have the ability to change their mind and walk away from the deal without penalty.

In exchange for the option to buy, you’ll typically pay an option fee of 1% to 5% the purchase price. The good news is this fee typically gets credited toward your down payment. The lease period typically lasts 1 – 3 years.

During this time, a portion of the rent you pay each month will go toward an eventual down payment or the overall purchase price. As a result, you typically pay a slightly higher amount each month during the lease than you would with a traditional rental.

Once terms are agreed upon, the details are formalized in a legally binding contract. This document will specify the terms of the arrangement and any contingencies that would allow either party to terminate the deal without penalty.

Types of rent-to-own agreements

There are two primary types of rent-to-own agreements that offer different levels of commitment and flexibility: a lease-option agreement and a lease-purchase agreement.

A lease-purchase agreement is a binding contract that makes a you legally required to purchase the property at the end of the lease term. During the lease period, part of the monthly rent will be allocated toward making a down payment on a guaranteed purchase. If either party tries to cancel the deal, they can be held in breach of contract and face penalties.

A lease-option agreement gives you the right - but not the obligation - to purchase the property after the lease period. If you change your mind, you can choose to walk away from the deal without purchasing. You’ll lose the option fee and the money you paid extra for your down payment, but you won’t have to face legal penalties.

How to find a rent-to-own home: 5 different ways

While not all sellers are open to a rent-to-own agreement, this type of arrangement can be beneficial for sellers who know they want to sell but not right away. Let’s take a look at some different ways you can find rent-to-own homes.

1. Connect with a real estate agent

Working with a knowledgeable real estate agent can be a great way to find a rent-to-own home. A real estate agent who is experienced with the local market may already know of rent-to-own listings or sellers who would be open to this option.

It can be helpful if the real estate agent you work with is also experienced with rent-to-own agreements. Real estate agents can also help you stay within your home buying budget and help you negotiate the terms of your agreement. 

2. Search the local real estate market

There are pockets of the real estate market that are ideal for finding rent-to-own properties. This includes properties that have maybe been listed on the market for a long time with no bites or properties that are in preforeclosure. The owners of either of these kinds of properties could benefit from a lease-option contract or a lease-purchase agreement that helps them attract a buyer.

Checking the local real estate market on a regular basis is an easy way to keep your eye on unique properties that might be ideal for this type of arrangement. Platforms like Redfin make it easy for you to monitor what’s on the market and which sellers may be open to a rent-to-own offer.

3. Apply for a rent-to-own program

A simple online search can help you find rent-to-own programs in your areas or nationwide. These programs have different qualifications and requirements potential buyers will need to meet in order to get their application approved. For example, some programs have credit score minimums or debt-to income ratio (DTI) maximums you’ll need to meet to be eligible.

Here are just a couple of rent-to-own programs offered in various states nationwide:

• Home Partners of America
• Divvy
• Dream America
• Trio
• Verbhouse, Inc

4. Utilize a rent-to-own portal

Rent-to-own portals are databases designed to help people locate these types of available properties. One downside is that these portals usually come with a monthly fee. It’s also important to note that not every portal can guarantee that all of the listed properties are rent-to-own, but they might have the option to turn into a lease purchase agreement. Properties that are in pre-foreclosure or have been on the market for an extended period are ideal candidates for a rent-to-own agreement.

5. Make an offer to an interested party

Some properties are listed as rent-to-own, but that doesn’t mean that other sellers won’t be open to this type of arrangement. Let’s say you find a rental property that has everything you want, but it’s not currently listed on the market for sale. You can work with your real estate agent to come up with an offer to present to the property owner. Some might say no, while others might be receptive to the idea that they could earn rental income before they sell the home.

The same goes for other properties that might not explicitly be listed as rent-to-own but have the potential to become a rent-to-own property. Making an offer to a property owner could get you into a rent-to-own agreement that positively benefits both you and them.

What to look for in a rent-to-buy home

There are certain circumstances that can help make a rent-to-buy home a great experience. Let’s take a look some things to look for in this type of home.

A knowledgeable landlord

Whether you go with a lease-option or lease-purchase agreement, it’s important to work with a landlord who knows what they’re doing. The property owner should be well aware of your financial plans regarding the home and be aligned with the lease-purchase agreement that is put in place.

Working with an experienced landlord is especially important when the rent-to-own agreement is being finalized as this type of contract has many unique aspects to it compared to a typical rental agreement.

A home in good condition

The condition of a home should always be considered before you sign on the dotted line. It doesn’t make sense to pay extra to rent a home before you buy it if it has issues that you’ll only inherit when you become its owner.

Evaluate the property and ask the property owner questions to fully understand the current state of the home as well as any past issues. It’s often advisable to order a professional home inspection before signing the rent-to-own agreement so that you know what you’re committing to. A professional inspection will be an additional cost, but you’ll need one done before you buy the home regardless. It could end up saving you money in the long run if there are hidden issues with the property.

A smart investment opportunity

While you might not be considering this home as an investment opportunity, it could eventually become a real estate investment over time – especially if you ever want to move out and sell it. It might be worthwhile to ask yourself a couple of questions before you commit to a rent-to-own property:

• Will the value of this property continue to increase?
• Will this neighborhood stay popular and safe?
• Could I make money off this property if I sold it in 5 years?
• Could this property act as a rental or investment property in the future?
• Will this property require a significant amount of money for upkeep and maintenance once I own it?

Due diligence 

Before you sign a rent-to-own agreement, be sure to read the contract carefully and consult with a real estate attorney for due diligence. An attorney will be able to evaluate the agreement and make sure it complies with local real estate and tax regulations. They’ll also be able to determine how the extra funds you pay to build a down payment will be held. Typically, that money will sit in an escrow account until the end of the lease term.

Consider any contingencies you’d like to build into the agreement that would allow you to walk away from the deal if problems with the home arise while you’re leasing it. Schedule a home inspection and ask the seller questions to confirm they are vetted, trustworthy, and financially stable.

It’s also important to beware of common rent-to-own scams, such as:

• The seller doesn’t really own the property.
• The owner hasn’t paid property taxes.
• The house is in terrible shape or has issues like lead or asbestos.
• Promised fixes aren’t made after a contract is signed.
• The house is in foreclosure.

Pros and cons of rent-to-own for buyers

A rent-to-own arrangement can come with certain benefits and drawbacks for buyers. Let’s examine some of the pros and cons.

The bottom line: Find a rent-to-own home that fits your needs

Some properties are listed on the market with a rent-to-buy option. In other cases, you may be able to negotiate a rent-to-buy agreement with a seller who wasn’t planning on taking that route. In either case, working with a real estate agent and monitoring the market can help you close in on a rent-to-buy home. Keep in mind that this house should be able to work for you in the long run since you’ll eventually be the full owner of the home.

Are you ready to become a homeowner? Start the home buying process today.

Rocket Mortgage, LLC, Rocket Homes Real Estate LLC, Rocket Card, LLC, RockLoans Marketplace LLC (doing business as Rocket Loans), and Rocket Money, Inc., are separate operating subsidiaries of Rocket Limited Partnership. Redfin Corporation is an affiliated business of Rocket Limited Partnership. Each company is a separate legal entity operated and managed through its own management and governance structure. Rocket Limited Partnership is an indirect, wholly owned subsidiary of Rocket Companies, Inc. (NYSE: RKT).

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