How to find rent-to-own homes

If you want to buy a home but aren’t ready for a mortgage, a rent-to-own home could be the answer. It’s when you agree to rent the house for a set period before having the option or obligation to buy at a predetermined price. Meanwhile, a portion of your monthly rent may go toward that price. For many, this arrangement can lower the barrier to buying a home.

Key takeaways:

• Rent-to-own agreements let you lock in a purchase price now while renting for 1 - 3 years, with part of your rent (and an option fee) credited toward your eventual down payment.
• You can find rent-to-own homes through real estate agents, dedicated programs, rent-to-own portals, or by approaching owners of stale listings directly.
• Before signing, vet the property and the contract to avoid common scams like sellers who don’t actually own the home or property already in foreclosure.

How rent-to-own programs work

When you enter a rent-to-own agreement, you’re usually required to pay a nonrefundable option fee (typically 2% – 7% of the home’s value). This gives you the right to buy the home at the end of a lease period (typically 1 – 3 years). Furthermore, the fee is credited toward the purchase price if and when you eventually buy the home.

Many rent-to-own programs also set aside a portion of your monthly rent during the lease period for a down payment. The funds are held in an escrow account until you’re ready to buy the home with a traditional mortgage.

Example of a rent-to-own agreement

Here’s what a basic rent-to-own agreement might look like*:

RENT-TO-OWN AGREEMENT (Sample)

This Agreement is made between:
John Smith (“Seller”) and Sarah Lee (“Tenant-Buyer”)

Property: 123 Maple Street, Anytown, USA

1. Lease Term
This lease begins June 1, 2026, and ends May 31, 2028 (24 months).

2. Monthly Rent
Tenant-Buyer agrees to pay $1,800 per month, due on the 1st of each month. Of this amount, $300/month will be credited toward the future purchase price if the option to buy is exercised.

3. Option Fee
Tenant-Buyer shall pay a one-time, nonrefundable option fee of $6,000 upon signing, granting the exclusive right (but not the obligation) to purchase the property before the lease ends.

4. Purchase Price
If the option is exercised, the purchase price is set at $300,000, regardless of market value at the time of purchase.

5. Option to Purchase
Tenant-Buyer may exercise the option to purchase at any time before May 31, 2028, by providing written notice to Seller. If the option is not exercised by this date, it expires, and all option fees and rent credits are forfeited.

6. Maintenance
Tenant-Buyer is responsible for routine maintenance and minor repairs. Seller remains responsible for major structural repairs.

7. Default
If Tenant-Buyer fails to pay rent or otherwise defaults on the lease, this Agreement may be terminated, and all fees and credits paid to date are forfeited.

Signatures:
Seller: ___________________ Date: ________
Tenant-Buyer: ___________________ Date: ________

*This is a sample contract for illustrative purposes only. Always have a real estate attorney draft or review your actual contract.

What happens when the lease ends

When the rent-to-own lease period ends, the buyer has the option or obligation to buy the property. If they don’t, they forfeit their option fee and any rent credits that otherwise would have gone toward the purchase price.

Types of rent-to-own agreements

Rent-to-own agreements come in two main forms: lease options and lease purchases.

Lease-option agreements

Lease-option agreements give you the option (but not the obligation) to buy the property after the lease period ends. This arrangement requires paying an option fee, but you’re generally not responsible for property management expenses while renting.

Lease-purchase agreements

Lease-purchase agreements make you legally obligated to buy the property after the lease period ends, even if you’ve changed your mind or can’t afford it. The seller is also legally obligated to sell. An option fee may or may not be required, and property expenses are typically the tenant-buyer’s responsibility.

How to find rent-to-own homes

Here are some different ways to find a rent-to-own home:

Work with a local real estate agent or brokerage

A local knowledgeable real estate agent or brokerage may know of rent-to-own homes for sale in your market or sellers who may be open to this arrangement. At the very least, they can help you shop for potential rent-to-own homes, attend open houses, and negotiate favorable contract terms.

Search for properties that are struggling to sell

When a property has been listed for sale for a while, the owner may consider a rent-to-own agreement to attract more buyers. Search online real estate marketplaces like Redfin and filter by listing duration (“Time on Redfin”) to identify these owners and pitch a rent-to-own sale.

Apply for a rent-to-own program

Dedicated rent-to-own programs are another option. They exist nationwide and may have different qualification requirements across minimum credit score, maximum debt-to-income (DTI) ratio, and other factors. Some program examples include Divvy and Trio.

Use a rent-to-own portal

You can also search dedicated rent-to-own marketplace sites. For example, www.RentToOwnLabs.com lets you search exclusively among rent-to-own listings where the owner is already on board with this type of arrangement. 

Make an offer to a property owner

Even if an owner hasn’t listed their property for sale, they may be open to a rent-to-own deal. For instance, tired landlords may welcome a rent-to-own agreement as a way to gradually exit a rental property investment.

Questions to ask before choosing a rent-to-own home

Before committing to a rent-to-own agreement, ask yourself these questions:

What is your target location?

Where you want to buy a home has a major impact on housing costs. If you’re looking at an expensive area, a rent-to-own arrangement could make buying a home more accessible. However, if the area is relatively affordable, you may choose to buy the traditional way.

What is your approximate credit score?

Your credit score impacts how much you can borrow to buy a house. Many mortgages require a minimum score of 620. Rocket Mortgage accepts scores as low as 580. If you have low credit, renting to own can give you more time to increase your score before you get a mortgage.

What is your monthly budget?

Your monthly housing budget also affects how much you can borrow. The Rocket Mortgage rent vs. buy calculator can help you determine your budget. If your housing costs exceed 30% of your gross income, many lenders consider this unaffordable and won’t lend to you as a result. In that case, renting to own could give you time to increase your income.

Which agreement type fits your situation?

Given the above, carefully consider which homebuying arrangement best fits your financial and personal situation. Remember, every circumstance is unique, and the right answer for you may not be the right answer for someone else.

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

When comparing rent-to-own home options, look for the following:

A knowledgeable landlord or property owner

Not every property owner is familiar with rent-to-own agreements. Favor those who understand how it works and are comfortable with the arrangement. Otherwise, you could face unnecessary misunderstandings or disputes.

A home in good condition

Even if you’re not responsible for upkeep and repairs during the lease period, choose a home in good condition. That way, you can avoid inheriting costly repair projects when the house becomes yours. To properly assess the home’s condition, order a professional home inspection. 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.

Title research and legal verification

Hire a title company to perform a title search before buying. This helps ensure the owner is actually the owner and has the right to sell the property. It can also surface any liens against the property, which could prevent or complicate the sale.

Contract terms attorney review

Hire an attorney to review the rent-to-own contract and ensure it complies with local real estate and tax regulations. They can also suggest what contingencies to include, and circumstances under which you could walk away from the deal.

Neighborhood stability and investment potential

Aim for a home that will eventually become a real estate investment. While there’s no way to predict the real estate market, here are some good signals to look for: local population growth, a safe neighborhood, zoning that allows for rentals (so you have the option to rent out the home), and attractive nearby amenities.

Rent-to-own scams to avoid

Keep in mind that some rent-to-own deals can be flat-out scams. Avoid these red flags:

• The seller does not own the property.
• The owner has unpaid property taxes.
• The house has hidden issues.
• Promised repairs are not completed.
• The home is already in foreclosure or is in pre-foreclosure.
• The contract has unfavorable terms.

Pros and cons of rent-to-own for buyers

Consider the pros and cons of rent-to-own agreements:

Pros

• More time to save for a down payment. Part of your monthly rent will likely be escrowed for your eventual down payment.
• More time to improve your mortgage options. Any improvement in your credit score, DTI ratio, or income can increase how much lenders are willing to let you borrow.
• Lock in a favorable purchase price. The purchase price on a rent-to-own agreement is locked in when you start renting, not when you buy.
• No need to move when you’re ready to buy. Since you’re already living in the home, you can stay put.

Cons

• Higher rent. Your rent will likely be higher than average to account for the portion credited to your eventual down payment.
• Nonrefundable option fee. If, for any reason, you don’t go through with the purchase, you’ll forfeit your option fee.
• Property expenses. Even during the rental period, you may be responsible for expenses like maintenance, insurance, and property taxes.
• Financing isn’t guaranteed. If you’re unable to qualify for a mortgage at the end of the rental period, you could forfeit your option fee and still be legally liable for not buying.

Frequently asked questions

Here are answers to some frequently asked questions regarding rent-to-own homes:

What is the best website for rent-to-own homes?

A useful website for finding rent-to-own homes is RentToOwnLabs.com. It’s a dedicated online marketplace for rent-to-own home listings in the U.S. However, you can also find many rent-to-own opportunities on Redfin.

Is a rent-to-own house a good idea?

It can be, for instance, if you can’t yet qualify for a mortgage but are ready to commit to a home you like.

How do you find out about rent-to-own homes?

Ask local agents and property owners  or search for rent-to-own programs and listings online.

Is rent-to-own a good option for a seller?

It can be, e.g., if the seller is having a hard time selling and wants to attract more buyers.

Can you find rent-to-own homes for free?

Yes, you can find homes to buy, including rent-to-own homes, for free on websites like Redfin or by asking agents and property owners.

Can you find rent-to-own houses by owner?

Yes, some owners may list their property for sale by owner (FSBO) and be open to a rent-to-buy agreement. Filter FSBO listings on Redfin by clicking “By owner (FSBO)” under “Listing Type.”

The bottom line: Rent-to-own offers another path to homeownership

Rent-to-own can be a smart bridge to homeownership if you need more time to save or boost your credit. Once you’re ready to buy, whether through a rent-to-own agreement or the traditional route, we can help. Start your mortgage application with Rocket Mortgage today.

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