Fred's answer is quite good. A few small errors, but definitely read it.
A few tips (some already covered):
--Make sure your Realtor knows, understands, and is comfortable with lease-options or lease-purchases. (There's no such thing as "rent to own." With a lease-option, you rent with the option to purchase. With a lease-purchase, you lease and are committed to buying. Either is OK. What people call "rent to own" usually refers to a lease-option arrangement.
--Have a lawyer--a real estate lawyer--review the paperwork. There are lots of ways you should protect yourself. For instance, you want to be protected in case the owner wants to sell to someone else, not to you. You want to be protected if the owner gets into financial trouble and stops paying his mortgage. You want to be protected if, at the end of the option, the house doesn't appraise for what you've agreed to pay. All of these are serious issues, but there are very effective solutions to each.
--Many lease-options are not listed on the MLS that way. So you have to know how to search for them and how to "make" them. You can do some yourself. For other techniques, you need a Realtor. Here's a link to a blog I wrote on how to find lease-options and lease-purchases: http://bit.ly/FindaLeaseOption.
Hope that helps.
Lease options can entail you putting a substantial amount of money down - up front. This money may be non refundable if you don't exercise your option to purchase the property. In addition, normally you would be paying above market value for rent with a portion of this money going toward the purchase price.
My advice is to speak with a loan agent first and try to get pre-approved for a loan. If you cannot get approved, the loan agent should guide you on the right path to get approved.
Here are some additional items to consider in rent to own:
1. Eventual home ownership.
2. Opportunity to improve credit rating during rent to own term.
3. Time to save up for a down payment to obtain the loan to purchase the rent to own home.
1. Many sellers do not want to lock into a specific price due to the possibility of market value fluctuations. The homeowner usually will not mind if you end up paying more for the home than its value, but they will definitely not want you to benefit from an increase in the market value that might be realized. So watch out for anything in the agreement that relates to purchase price. Is it fixed or will it fluctuate?
2. Time goes by much faster than we all realize. The end of the term to exercise the option will arrive faster than you think. Make sure that you are going to be in a financial position to exercise the purchase option when that time arrives. Talk to a mortgage professional to find out what steps you need to get yourself in a position to get qualified for a mortgage.
3. Possible responsibility for the maintenance of the home. Make sure you understand what maintenance obligations are going to be yours.
A rent to own property can be an excellent solution to your housing needs, but please BEWARE of the common pitfalls that you can run into. Make sure you read and understand everything before you sign anything.
I have never heard of it being done successfully.