{"id":16485,"date":"2024-11-04T15:36:22","date_gmt":"2024-11-04T21:36:22","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=16485"},"modified":"2025-08-26T10:02:12","modified_gmt":"2025-08-26T16:02:12","slug":"rent-to-own-vs-buying","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/loans\/rent-to-own-vs-buying.html","title":{"rendered":"Rent-to-own vs. buying: what is the difference?"},"content":{"rendered":"\n
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice.<\/em> See Lexington Law\u2019s editorial disclosure for more information.<\/em><\/a><\/p>\n\n\n\n

The real estate market can be intimidating for anyone, especially those who may be in the market for their first home or who may have less-than-excellent credit. In 2023, the average median down payment on a home in the United States was slightly over $34,000<\/a>. For many young people, the idea of saving up that much can feel impossible.<\/p>\n\n\n\n

Luckily, there\u2019s another option. Rent-to-own homes can be an excellent way for those who need more time to be ready for homeownership. But if rent-to-own is so great, why isn\u2019t everyone doing it? Well, rent-to-own does come with some significant downsides. Keep reading for a comprehensive overview of rent-to-own vs. buying to understand which option is right for you.<\/p>\n\n\n\n

<\/a>What does rent-to-own mean?<\/h2>\n\n\n\n

The process of rent-to-own is very much what the name sounds like. You start by renting the home but enter into a contract as part of your rental agreement that you intend to purchase the house after an agreed-upon time (usually one to three years).<\/p>\n\n\n\n

As long as you buy the home, a specific portion of your rental payments, determined up front, is applied to the price of the house. <\/p>\n\n\n\n

A rent-to-own agreement also locks in the price of the home at the time of the contract, so you don\u2019t have to worry about appreciating values putting the house out of your financial reach after a few years. <\/p>\n\n\n\n

For example, you can sign a contract saying 25 percent of your rental payments will go toward the home purchase after five years of renting. The agreement values the home at $350,000, which is what you\u2019ll buy it for at the end of the five years. Your rent is $2,000 a month, so you\u2019ll have a \u201cdown payment\u201d of $30,000 at the end of the five years. <\/p>\n\n\n\n

When you choose rent-to-own, you have to decide if you\u2019ll go with a lease-option or a lease-purchase agreement. A lease option means you can buy the home at the end of the rental period, but you aren\u2019t legally bound to do so. This option gives you some flexibility. <\/p>\n\n\n\n

A lease-purchase is a legally binding agreement that you\u2019ll buy the house at the end of the rental period, and you can face fees and other repercussions if you don\u2019t follow through.<\/p>\n\n\n\n

<\/a>Rent-to-own vs. buying: What\u2019s the difference?<\/h2>\n\n\n\n

If all goes well, the result of rent-to-own is the same as when buying traditionally, but how you get there is a little more complicated.<\/p>\n\n\n\n

When you buy a house traditionally, you work with a real estate agent, look at homes that fit your purchase budget and then make an offer on the one you like. As long as the offer is accepted and nothing shows up on the inspection or appraisal, you close on the house and it\u2019s yours.<\/p>\n\n\n\n

With rent-to-own, you\u2019ll still likely work with a real estate agent and look at homes. However, when you find one you like, you\u2019ll enter into either a lease-option or lease-purchase agreement and start renting the house. After the rental period, you\u2019ll have to buy the house with a mortgage and the traditional closing procedures.<\/p>\n\n\n\n

Rent-to-own can be more expensive because there are usually fees associated with this option. You\u2019ll have to pay those as well as the regular closing costs and fees when it\u2019s time to buy the house. It can also be more costly because there are hidden fees and risks associated with rent-to-own (more on that below). <\/p>\n\n\n\n

In most cases, you\u2019ll also be responsible for most of the maintenance on the house while you\u2019re renting. This is essential to consider, as it can be costly and take away one of the typical benefits of renting. <\/p>\n\n\n\n

<\/a>The risks of rent-to-own<\/h2>\n\n\n\n

There are two main risks involved with rent-to-own situations. The first is that property values in the area might decrease over the rental period, which could leave you paying more than the house is worth. If you signed a contract to purchase the home at $350,000 but at the end of the term the home is worth $250,000, you\u2019ll be stuck paying the original agreed-upon price. <\/p>\n\n\n\n

The second risk is that you might lose the house\u2014and usually a decent chunk of your money investment with it. Here are a few scenarios that could happen:<\/p>\n\n\n\n