Can I Rent-to-Own Without a Down Payment?

When discussing down payments on a rent-to-own home, it's important to understand how a rent-to-own home down payment differs than a traditional down payment. The term “down payment” can be misleading. There is a difference between the down payment on the purchase of a house/property and a down payment to secure a rent-to-own option.

Typically, in a rent-to-own agreement, the tenant/potential buyer can move into a house right away. This gives potential buyers several years to work on improving their credit score and/or saving for a down payment to purchase. However, this type of contract may require tenants to pay a one-time (non-refundable) fee called “option consideration fee”. This helps to secure the option to lease or purchase the house in a rent-to-own agreement.

Because no two rent-to-own contracts may be the same, there are many variables with regard to how the agreement may be negotiated. Most states have their own rules and regulations about what terms must be included in the agreement. There can also be many different conditions and terms written by the Landlord/seller and Tenant/Buyer to reach an agreement that works for both parties. Getting guidance on how to write a successful agreement is important because of the legal and financial obligations created. Remember to protect yourself, and don't sign anything you do not understand.

Traditionally, in most rent-to-own agreements, the tenant/potential buyer will rent the property for a set amount of time. After a previously agreed-upon period of time, the tenant will have the option or requirement (depending on the type of agreement they chose) to purchase the house from the seller.

It's not as simple as paying rent and then one day owning the home. There are different terms and conditions which must be met, in accordance with the negotiated agreement. After a set time you may have the legal obligation to be able to secure a traditional mortgage from a lender. Therefore, be sure you can meet that requirement and get your finances, credit or savings in order,

In a rent-to-own agreement both parties work together to craft an agreement/contract that will meet their personal needs. If you do not have enough money for a down payment, which is typically 3 to 7% of the negotiated purchase price, you may be able to pay a lesser fee as option money. In lieu of option money, you may be able to pay a security deposit. Remember many of the terms are negotiable, but make sure you understand all the terms before you sign anything. The bottom line in a rent-to-own is that you know and understand your finances, budget and commitment. Knowing your legal and financial responsibilities will help you to complete a successful transaction.

Rent-to-own is not easy and there can be pitfalls and risks, make sure you research all the pros and cons so that you can create the best deal for you and remember keep working to save for when the lease term is up so you can fully purchase your dream home.

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