Rent to own is when you lease a home but have the option to purchase it at any time during your lease period or at the conclusion of the lease. During that time the owner agrees that she will not market the home for sale because she has, in essence, promised to sell it to you. The first part of the rent to own agreement spells out what your monthly rent payment will be, and the second part binds the seller to sell to you at an agreed price, provided you meet the conditions of the agreement.
Not to be confused with a rental security deposit, an option fee is paid at the beginning of the lease period. It is generally not refundable, whether or not you decide to purchase the property. In the case of some rent to own agreements, the option fee may be applied toward the purchase price of the home.
Three to 5 percent of the agreed-upon purchase price is a customary option fee. Anything above or below that can be negotiated between the parties. The more you have to put down, the more attractive your offer will be to the seller. In addition, the more you put down as an option fee, the less you'll need to have financed somewhere else as the terms of your lease are about to expire.
Most rent to own agreements contain a provision that puts a portion of the monthly rent payment aside as a credit toward the eventual purchase of the home. The amount varies by situation, but is sometimes as high as 50 percent of the rental payment. The obvious advantage to the tenant is that he begins building equity as he rents.
Rent to own programs are designed with two people in mind: the hopeful home buyer with less than perfect credit and the seller who is having a difficult time selling his home. Qualifying for a program like this is more about your ability to make the monthly payments. The period of the lease gives you time to make repairs to your credit.
Before entering into any kind of contract you should speak with a loan officer, tell him your situation and allow him to give you a realistic view of where you will be in three to five years. Join a reputable credit repair program to get your finances in order. Finally, be responsible for your credit during your rent to own term. Pay off old debt and don't add any new.
source : http://homeguides.sfgate.com/faq-rent-own-homes-1926.html