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What are Rent to Buy Homes?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 03 November 2016
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Rent to buy homes may also be called rent to own or lease option homes. There are some differences between contracts on each of these that should be noted. Disadvantages and advantages of rent to buy homes or lease option homes need to be duly considered prior to making this type of arrangement with a landlord.

In a rent to buy home scenario, a potential renter makes a deal with a landlord to purchase the house by a set date at the current market value. During the time the renter is paying rent, they also need to be saving for their deposit. In some cases, especially in rent to own or lease option situations, the renter not only has this arrangement with the landlord, with an option to later purchase the property, but pays extra rent which will constitute a portion of the deposit on the house when the house is purchased. Instead of simply having an agreement to buy the house at a set price, the renter is actively contributing towards the purchase of the home through extra payments.

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While this scenario might be terrific for some people, it’s not so great for others. First off, the housing market must be taken into account when you’re thinking about rent to buy homes. If you agree on a market price now that turns out later to be higher than the value of the home then, the rent to buy situation may not work out well. If during the time you’ve rented the home, and decide later not to buy it, then you lose any extra funds you’ve given to the landlord. Unless you break your lease, this doesn’t hurt your credit, but it can certainly diminish any savings toward buying a new home.

On the other hand, when the housing market is inflating, rent to buy homes may be a great way of locking in a lower market price. By committing to a lease option or rent to own situation, and by contributing monthly toward your deposit, you are actively saving money toward the purchase of the house. You also may get the house at a much better deal when you actually can afford to buy it, then you would if you simply save money on your own for the later purchase of a home. There is some risk, however. Housing markets can be volatile and are not always predictable.

You should consider, prior to looking at rent to buy homes, your eligibility for purchasing a home within the set date of the option to purchase. You’ll need to consider your earnings, your credit rating, and any upcoming events, like starting a family that might affect future earnings or credit. Most realtors recommend seeing a good mortgage broker before agreeing to a lease option of any kind; since you absolutely must know if you’ll be eligible for the loan you’ll need to take in order to get the home. You should also treat any rent to buy homes as similar to the direct purchase of a home. It is vital to have the home adequately inspected and appraised before a price is agreed upon.

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anon329482
Post 5

In Louisiana, can a person who's not a leasing agent write up a rent to own contract? If you agreed on a rent to own contract and find out the area the house is in is skunk infested, what can you do?

anon100259
Post 4

Musty and Latte31 thank you for your comments.

The situation we had come across was a person who did not have a real estate license and was claiming to be a leasing agent who drew up a lease agreement for a rent to buy home.

This person wanted to take a commission up front from the home owners leasing to us and I was researching the legality of the issue. Of course we did not go into this deal and realized it was a possible scam or potentially risky deal for us and the owners.

latte31
Post 3

Mutsy- The only problem with the rent to own home is the scenario that the writer posed.

If market values continue to fall a year from now, the renter that is looking to eventually own the home will be at a significant disadvantage because the market value of the home will have declined significantly.

This means that even if the renter still wanted to buy the home, he would be unable to obtain financing from a bank because the property would not appraise at the value originally agreed upon. This is usually a contingency for obtaining financing.

mutsy
Post 2

Wendy5555- I don’t know the answer to your question, but I do want to say that rent to buy houses are becoming more common as homes are taking longer to sell.

This allows the seller to at least receive some income from the property and allows a buyer that does not quite have a 20% down payment the ability to use a portion of the rental income towards the down payment on the home.

wendy5555
Post 1

In California can a person who is NOT a leasing agent write a lease option to buy contract for a landlord or tenant/buyer? Can they accept a commission or payment for it? Can a leasing agent write up this kind of contract or does it have to be a realtor?

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