You see the hand-written signs on the side of the street, many saying something along the lines of, “Rent-to-own, no credit needed!” If you do not have a large down payment and your credit isn’t so good, is this a viable option for you? What does rent-to-own (or lease-to-own) really mean?

You may be familiar with furniture and electronics rent-to-own stores. If so, you know that it’s a decent option if you need something like a new washer or dryer right now, but can’t afford to buy one or don’t have the credit to get a new one. You also know that if you do finish paying for the merchandise over the course of the original agreement, you may end up paying nearly twice what the actual retail cost of it might have been. Good in a pinch, but not a good deal over the long run.

The same holds true for the rent-to-own model of buying homes. Generally, a rent-to-own home is offered by the current owner. It starts out as a traditional lease and then a part of the amount paid into that lease over the course of between one and five years may convert into the down payment towards the purchase of the home.

Horror stories abound, and the consensus is that very few of the renters actually convert to buyers after the lease period is up. The monthly rent-to-own payment amounts tend to be much higher than if they were normal rental properties. Some owners require large deposits or ‘down payments’ that you could have applied to a traditional lease anyway. Remember, while you are in the lease portion, the owner still has the power to evict you. There have also been reports of owners getting foreclosed on and not bothering to tell their tenants. Not all owners are dishonest, but do be wary. Make sure any contracts you enter into are very clear on both sides.

If you think in the short term, the lease period could give you time to save for another purchase or clean up your credit enough to qualify for a loan that you couldn’t get before. Still, there are enough Henderson homes for sale and enough loan options that it might be best to explore all the traditional avenues before you end up paying way more than you should. Consult with a professional before you sign anything.

See our previous post about renting vs. owning for a little more insight.