Stricter credit requirements, rising home prices and stagnant wages can make it more difficult for families and individuals to qualify for a mortgage right now.
As a result, some consumers may want to consider a rent-to-own contract (otherwise known as a lease-option contract) in which they can apply their rent payment toward the purchase of their home. While there are advantages to this type of contract, there are also some significant risks.
How it Works
Rent-to-own contracts can vary, but generally they work like this:
For more information on how rent-to-own agreements work, read this article on the National Association of Realtors website.
Advantages and Disadvantages
There are a couple of significant advantages to a rent-to-own contract.
While this may seem like the ideal situation for many families not yet ready to become homeowners, there are risks involved with this type of financing. Below are some of the major disadvantages.
For more information on the pros and cons of rent-to-own, read this article published in Forbes. Anyone considering a rent-to-own agreement should also contact a real estate attorney for assistance.
Are you ready to purchase a home?
TSAHC can help. Our Homes for Texas Heroes and Home Sweet Texas Loan programs provide Texas families with up to 5% in down payment assistance that can be put towards your down payment and closing costs. TSAHC also offers a Mortgage Credit Certificate Program for first time home buyers that provides a tax credit that can save you thousands of dollars over the life of your home loan.
Take our Eligibility Quiz to see if you qualify for one or both assistance options. You can also compare assistance options by using our Program Comparison Calculator.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.
I have Silum Compensation Money id like to use on a home or motor home or trailer I’ve never done of this or where to start but I don’t want to end up with renting it could total up to 4200 the money would be sent to them…I need sum advice
Hello Cesilia,
Please contact a legal counsel to discuss what is right for you. If you cannot afford an attorney, you can direct your question to TexasLegalAnswers.org, a free online legal advice website where volunteer attorneys provide answers to low-income Texans, legal aid, or contact the Real Estate Commission.
We are planning on buying a mobile home of rent to own, but the landlord is asking for the down payment plus first months rent is that normal to ask when buying a home?
Hello Jessica,
Thanks for your question.
The difference between rent-to-own and owning a house is that rent-to-own gives buyers the option of leaving the property before buying it. But, It also gives buyers the ability to lock in the house they want before they can afford it.
For this reason, down payment assistance programs are designed for buying a home, not renting to own. The leases on rent to own are designed around whatever you and the landlord agree upon.
Can you use downpayment assistance with rent to own?
I’m glad you talked about renting gives the opportunity to build credit and save for a down payment, while also building home equity. Before moving to our new area, we have to decide if renting is right for us.
Hi Maria, we suggest you contact a real estate attorney or legal aid for assistance. A list of Texas RioGrande Legal Aid offices can be found on their website at http://www.trla.org/office.
Thanks for the information. Useful and Informative Content
Our contract was for a year rent to own on a mobile home the year was over and the landlord didn’t want a do a new contract we have been paying for the mobile home taxes although is under her name, we don’t claim it in the taxes she does. Is this right? Are we responsible to pay the taxes of the mobile home every year?
Please advise,
Thank you
Maria
Hi Lee, we suggest you contact a real estate attorney or legal aid for assistance. A list of Texas RioGrande Legal Aid offices can be found on their website at http://www.trla.org/office.
I own a bare lot, with utilities. If I want to sell it the “rent to own”, when would we actually go through the title process? Or, can this just be something in writing that is agreed upon by both parties, then do the title transfer when the right time comes?
Thank you
Hi Scotty, we suggest you contact a real estate attorney or legal aid for assistance. A list of Texas RioGrande Legal Aid offices can be found on their website at http://www.trla.org/office.
I have a lease to own agreement on our house which we have been in for over 10 yrs and have renewed every year until the last 2 years due to neglect on both parties “ did not receive a new lease to sign nor did I aggressively demand it as in good faith by both parties we continued to for fill all aggreament” in the past year my spouse and I have been in a legal seperation thru Texas and County Family civil court system where due to uncontrollable reasons I lost my job and my spouse who has temporary possession of the property and I have defaulted in the payments. We have paid out 60% of the total purchase aggreament. House was maintained by us as well as over $30,000 in improvements were made to date note we owe $50,000 of the $120,000 on the aggreament property easily valued at over $160,000.The seller or lessor has sold the house to third Party unknowningly for over $150,00
and we received a notice vacate and relinquish the property by and to the third party. Do have any rights in this and my investment or settlement s from the property.. Please help with any advice.
Hi Beatrice, a real estate attorney can answer your question. You can also contact Texas RioGrande Legal Aid, Inc. for assistance. Their website is http://www.trla.org/office.
Can my father repossess his rent to own home during a chapter 7/11/13?
Hi Christine, a real estate attorney can answer your question. You can also contact Texas RioGrande Legal Aid, Inc. for assistance. Their website is http://www.trla.org/office.
hello we have a lease option to purchase contract on my mobile home, it has only been a year and half
our contract ends 3-1-2018 it has the rent 700.00 to go towards the 95000.00 of the home, the landlord called earlier and stated that her realtor will be coming out to take pics of home to put on market…... my question is we are wanting to purchase but fixing our credit nd she was fully aware of it…....what can we do??
Hi Mary, a real estate attorney can answer your question. You can also contact Texas RioGrande Legal Aid, Inc. for assistance. A list of their office locations can be found on their website at http://www.trla.org/office.
On a lease to own can the one that is carrying the note does they have to go into they home for no reason.
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Hi Margarita,
It’s a good idea to research your options carefully. Decide if you want to rent or own a home.
Renting offers flexibility, predictable monthly expenses, and someone to handle repairs. Homeownership brings intangible benefits, such as a sense of stability and pride of ownership, along with the tangible ones of tax deductions and equity. But, be careful about rent to own deals. Maybe, contact a realtor to help sort through your options. We offer a financial toolbox that helps you find nonprofit and housing counselors: https://www.texasfinancialtoolbox.com