It's probably not hard to find a single family home available for rent-to-own (RTO), but you do want to find a company that is doing it correctly and fairly to both the seller, and you, the tenant-buyer. Just like with any service, there are really good companies and those that are not. It's important the transaction be setup properly. If it is done correctly, then it can be a better way to go than renting or buying.
First, you do want to know how your credit looks. How long is it before you can obtain a purchase loan and what if anything needs to be done with your credit before you do qualify for a loan. If you are lendable in 6 to 9 months or less, then you probably just want to wait until you can buy outright. On the other hand, if you need 12 to 24 months, then renting to own may be a great option for you.
Watch out for companies that claim huge rent credits, as logically speaking, how can they provide 25% to 50% rent credits, (unless the seller owns the home free & clear or has a large amount of equity), or unless the home is overpriced and/or the rent is overpriced.
Most sellers are willing to allow somewhere around 10% rent credits, and that is logical if they are only asking current market price for the home and market rent. Find out the current value of a home before you sign a RTO contract and compare that to the seller's asking price (option price). Also, ask if the seller is current on their mortgage payments. The only way to make this transaction work without headache, is for the seller to ask a fair market price (supported by MLS comps), be current on their payments and not upside down on their mortgage, and to charge a fair market rent price.
Here are some of the key positive factors:
1. You get to live in the house that you plan on purchasing now;
2. Most RTO contracts allow you to do improvements to the property (ask if you get a further reduction in the purchase price if you were to do any improvements);
3. If the market value of the home goes up during your rental phase, the appreciation (i.e., increase in equity) should be yours;
4. If the market value decreases during your rental phase, then does the seller have enough equity in the home to lower the purchase price to the appraised value and are they contractually willing to do that; or, if they don't have the equity in the home to lower the purchase price to the appraised value, are they willing to extend your terms and conditions with no rent and/or price increase.
Just think, if you purchased the home, and the market value went down, then you are stuck with an upside down mortgage. At least with RTO, you don't have to purchase, and the owner is stuck with the depreciated asset...not you! Also, if you purchased the home and did not like it after a year, you are stuck with it...whereas with RTO, you can walk away.
Yes, there is typically a non-refundable down payment due upfront plus first month's rent, and if you do not purchase, then you will lose the down payment. Again, if you had purchased, there would be much more severe consequences if the value went down and/or you wanted to move very soon.
Again, remember it's important to have your credit reviewed ahead of time before you do anything and to determine the market value of the home before you sign anything. With a good RTO agreement, the seller should be asking market price, and not charging a premium on the rent. For our contracts, we charge less for RTO than for straight rent, as you did put a down payment down upfront that should count 100% towards your purchase price.
We have lots of frequently asked questions on our website. Feel free to read them before you get into any RTO arrangement.
The best of luck to you!