And the time it takes for your rent-to-own contract to play out also means you could be vulnerable to financial fluctuations that ultimately make buying the home impossible for you.
“Interest rates will have an effect when you go to obtain financing for purchasing the property at the end of the lease,” Ludwinek says. “You may find that interest rates went up significantly from when you entered the agreement and you may no longer be able to qualify for financing at the higher rates. This may result in you having to walk away from the home, losing your downpayment.”
And though the landlord is technically the person in charge of paying property taxes and, in most contracts, maintenance and repair, as a buyer, you’ll often find yourself taking the lead on keeping the place up, for all practical purposes.
“As the buyer is vested as a soon-to-be owner, they will inherit any issues that arise with the home, and it is in their best interest to have it repaired to their liking,” Ludwinek points out.
And, finally, among the most potentially jarring cons of a rent-to-own program is that you’re not just at the mercy of your own financial circumstances, you’ll feel the fallout of your landlord, too.
If your landlord loses the home to foreclosure, for example, you’re suddenly going to be dealing with a whole new owner who doesn’t necessarily have to abide by the terms of an rent-to-own agreement he or she didn’t sign up for.
What happens if I don’t purchase the home at the end of a rent-to-own agreement?
In lease-option agreements, if you don’t buy the home at the end of the agreement, you’ll also usually lose all the downpayment you’ve already paid. The same goes for if it turns out you still can’t afford to buy the property at the end of the lease.
“[T]he option simply expires, and the renter can walk away without any obligation to continue paying rent or to buy but will lose any downpayment paid,” Ludwinek says.
If you try to walk away from a lease-purchase agreement, you may be leaving yourself open to a civil suit from the landlord for part of all of the lost home sale. This is definitely something you should talk about with a real estate attorney who knows the rent-to-own laws in your state.
Other specifics of a rent-to-own agreement, including what happens if the owner loses control of the property (like by selling it or having it foreclosed on) or whether you, as the renter, can speed up the process with a mortgage loan or increased payments, can depend on the terms of the agreement and are points you and your real estate attorney should discuss.
Is rent-to-own a scam?
Rent-to-own homes are not inherently scams—though there are scammers who use the model—but even in well-meaning scenarios, they come with risks that make them unadvisable for many.
Assuming the sale goes through as planned, entering a rent-to-own agreement might seem similar to renting a home while saving for a down payment. But even in the best scenarios, you lose a certain amount of flexibility, because if something doesn’t go as you expected, you’re still on the hook for your original commitment.
“These alternative home purchase agreements often are being marketed to financially distressed consumers, promising a path to homeownership, but putting consumers at risk,” the New York State Department of Financial Services states on its website.
Can I purchase my current rental through a rent-own-agreement?
You could, in theory, purchase your rental through a rent-to-own agreement, assuming your landlord is open to selling in this way. You would need to speak with the current owner, and most experts suggest finding ways to show that a rent-to-own agreement would be profitable enough for the seller. This could involve you paying a higher option fee, promising bigger monthly rent-credit payments, setting up a timeline that guarantees a sale in a short period, or a combination of those. It could also involve other things, like you taking over the maintenance of the property or, in specific cases, even taking over mortgage payments—though these are elements of the agreement you should go over carefully with your attorney. In return, you could potentially renegotiate your monthly rent, get improvements on the property, and so on.