Rent to own, known as lease options to investors, is an investment technique investors use. It doesn't really make sense, you might lose out two ways. First, you pay higher up front, about 5% of the purchase price plus extra rent each month. The regular rent goes to the owner, but the additional payments are used to buy down the price of the home. Second, the investor will try to get you to take the shortest option period possible, banking on the fact that you won't be able to exercise your option by the end of it (most renters won't qualify for a loan).
For example, if you buy a $275,000 home, paying $7,500 up-front and a rent premium of $500 a month on top of their $1,600 market rent, you'll have $13,500 saved after one year and $25,500 after three. But, if you just did that onb your own, you'd have the same amount - with interest. And, in this market, prices aren't exactly skyrocketing.
One disadvantage is if you can't qualify by the end of your option period, usually 12-36 months, you paid all of that for nothing, and you might not even want the house anymore. You may be able to get a contingency worked into a contract for the return of the extra rent and up-front payment in a buyer's market. Another disadvantage is negotiating a purchase price and then market values fall. Still another is the owner who negotiates a lease option, but doesn't tell you he's in foreclosure, and the home is repossessed without your knowledge, a scenario far more likely in this market.
But, it'll only make sense if you can get a long option period, AND you know you'll be able to qualify at the end of it. But, if you can save 3.5% for a down payment for a FHA loan by the end of the option period and still get a similar house, you won't need to do a lease option, and you'll have many more houses to choose from.
Do a search on lease options, and you'll find a lot of information on this investment technique, because that's what it is.
Good question, and good luck! Call or email anytime with questions.
Cory La Scala, REALTOR