{"id":16534,"date":"2023-05-23T09:00:00","date_gmt":"2023-05-23T15:00:00","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=16534"},"modified":"2025-05-14T16:12:40","modified_gmt":"2025-05-14T22:12:40","slug":"pros-and-cons-of-rent-to-own","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/finance\/pros-and-cons-of-rent-to-own.html","title":{"rendered":"Pros and cons of rent-to-own: everything you need to know"},"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

Rent-to-own is an appealing option for many prospective homebuyers, especially those who don\u2019t yet qualify for a mortgage. However, it isn\u2019t suitable for everyone. It\u2019s essential to recognize the advantages and drawbacks of rent-to-own so that you can make an informed decision for yourself. Keep reading for a comprehensive outline of the pros and cons of rent-to-own.<\/p>\n\n\n\n

What is rent-to-own?<\/h2>\n\n\n\n

Rent-to-own is a contract that allows the renter to buy the house they\u2019re renting after a certain period of time has passed. In this contract, a portion of the rental payments that have been made will go toward the home purchase. Additionally, the contract usually stipulates what the home\u2019s price will be when the lease ends. At the end of the lease, the renter acquires a mortgage for the property and finalizes the sale.<\/p>\n\n\n\n

In return for being given the opportunity to purchase the home, the renter pays higher-than-average rent and a one-time, nonrefundable option fee of between three and seven percent of the home\u2019s total price. For example, if you\u2019re purchasing a home for $300,000, a five percent option fee would be $15,000.<\/p>\n\n\n\n

Lastly, rent-to-own contracts come in two types: lease-option and lease-purchase. A lease-option contract allows you to decide if you want to buy the home at the end of the contract. You won\u2019t get your option fee back or the higher rent you paid, but you can walk away from the deal. In contrast, a lease-purchase locks you into buying the property at the end of the contract. So, if for some reason you change your mind or can\u2019t get approved for a mortgage<\/a>, there may be legal and financial consequences for not following through with the purchase.<\/p>\n\n\n\n

Pros of a rent-to-own home<\/h2>\n\n\n\n

Here are the positives of having a rent-to-own contract:<\/p>\n\n\n\n

1. You don\u2019t have to wait for improved finances<\/h3>\n\n\n\n

Ultimately, most people who opt for a rent-to-own contract are close to getting a mortgage but there is something holding them back. With Rent-to-own, the contract allows a person to move into the house they potentially want to buy without waiting for their finances to improve.<\/p>\n\n\n\n

2. You can build equity<\/h3>\n\n\n\n

One of the top reasons people consider rent-to-own is for the equity. Many people hate renting because the money they pay toward the rent doesn\u2019t contribute to their equity and financial growth. A rent-to-own contract will often stipulate how much of your rent payments go toward your future home purchase, which allows you to build equity while you rent.<\/p>\n\n\n\n

For example, let\u2019s say your rent is $1,500 a month for a one-year rent-to-own contract. Your contract states that $250 a month goes toward your home purchase. So at the end of the agreement, you\u2019ll have $3,000 in equity.<\/p>\n\n\n\n

3. You don\u2019t have to buy the house if you don\u2019t want to<\/h3>\n\n\n\n

If you have a lease-option agreement, you can still decide not to buy the property at the end of the lease. This is an added luxury as you get to live in the property without total commitment. Sometimes, people purchase  homes and later find out that they don\u2019t like the neighborhood or learn that the house has problems. A lease-option doesn\u2019t lock the person in, so they still have the flexibility to decide not to buy the property at the end of the agreement.<\/p>\n\n\n\n

Note that this isn\u2019t true for a lease-purchase agreement.<\/p>\n\n\n\n

4. You can lock in the house price<\/h3>\n\n\n\n

A rent-to-own contract often (although not always) stipulates what the price of the house will be at the end of the lease. If the local housing market increases during your rental period, you\u2019ll still get the benefit of purchasing the home at a great price.<\/p>\n\n\n\n