Rent-To-Own is just like any other service that exist - there are excellent companies that specialize in RTO, and those that do not understand the process and don't have a good program. When done properly, it is a great alternative to renting!
Too many people don't understand how it works, and confuse it with many other "creative real estate strategies". We have done over 400 RTO transactions, and it was a win-win for everyone - the tenant-buyer and the seller.
To answer your question, the first thing you should do is speak with either a mortgage broker or lender who can tell you how your overall credit looks. That would include your debt-to-income ratios and your credit scores. The bottomline with RTO is that you should not consider it, unless you know the home you do the lease-option transaction on is one that you definitely want to purchase, and that you will be able to get a loan to purchase it during the lease term. That is why you need to fully understand your credit situation.
If you just need a few months before you can purchase, then it's prudent to continue renting until you can get a loan. On the other hand, if you need between 12 and 24 months to potentially qualify for a loan, then RTO can be an excellent way to go. Lastly, if you need more than 24 months to fix/repair your credit, then continuing to rent maybe your best option.
Assuming you are lendable in 12-24 months, and you pursue a RTO transaction, then you want to make sure you are dealing with a NON-DISTRESSED seller who is not behind in their mortgage payments and is not underwater on their mortgage. Also, you want to know the current market value of the home you are considering, and compare that price to your option to buy price. The option price should not be more than current market value comps support.
Then, if all of that looks appropriate, then you would need a non-refundable down payment, plus first full months' rent. A typical down payment is usually between 3% and 5% of the purchase price of the home. The contracts should stipulate that 100% of your down payment will count towards the purchase price of the home.
The great thing is that if all the other information that I have described looks good, then you have the lease term (12-24 months) to work on getting your credit repaired, to get your scores to where they need to be.
Please read over our frequently asked questions on our website at http://www.BuyBaltimoreProperties.com/faq
to get a better understanding of how the process should work. Always discuss your plans with a mortgage broker/lender and have an attorney review any paperwork before you sign it. Remember, the monies you put down upfront are not refundable, so you need to have a clear understanding of the market value of the house, the seller's situation, and your own credit.
Good luck with your home search!