Rent-to-Own: The Affordable Path to Homeownership You Didn’t Know About

Ever dream of owning your own home but don’t have enough money saved up for a downpayment or a strong credit score? You’re not alone. For many people, owning a home can feel out of reach, but there’s a solution that’s often overlooked: rent-to-own. This path allows you to live in a home while working towards owning it, without needing a large down payment upfront or perfect credit. Sound interesting? Keep reading to find out how this can work for you!

Also, if you have a Section 8 Voucher, check out How to Buy A Home With Section 8!

What is Rent-to-Own?

Rent-to-own is pretty simple: you rent a house for some time and then have an option to purchase the house during this period. Some of your rent pays for your purchase later on, so, in a way, you save up to buy your home, not just pay rent to your landlord.

Here’s how it works:

You sign a lease just like a regular rental but with the added option to purchase the home when the lease is up.
Every month, you pay your rent, and quite often, part of that payment is saved to help you with your future down payment or buying a home.
When the lease ends, you have the option to buy the home. If you’re ready to buy, great! If not, you can choose to walk away (in most cases).
You can use rent-to-own calculators to estimate your affordability and payments in minutes.

For many people, rent-to-own is a smart way to prepare for homeownership without needing to have a lot of money saved upfront. This especially helps those people who have bad credit or do not have enough savings to begin the home-buying process according to conventional methods.

The best part about this is that even Section 8 participants may be able to take advantage of such rent-to-own programs. Some PHAs are allowing Section 8 vouchers to be used not only for rental assistance but also to assist in the process of becoming a homeowner.

How Does Rent-to-Own Work?

The rent-to-own process typically includes two parts:

The Lease: You sign a rental agreement, just like you would with any other rental property. The big difference is that this lease comes with the option to buy the home at the end of the term.
The Option to Buy: You also sign an agreement that gives you the right (but not the obligation) to buy the home at a later date. This can be in a few years, giving you time to save money and improve your financial situation.

Depending on the agreement, a portion of your rent goes towards the home purchase. For example, if you’re paying $1,200 a month, $300 of that might be put aside to go toward your down payment when you’re ready to buy.

Some agreements are more flexible than others. With a lease-option contract, you have the right to buy, but you’re not obligated to. If you decide the house isn’t right for you, you can walk away when the lease ends (though you might lose any money put towards the purchase).

To get a clearer picture of what you can afford, you can use rent-to-own calculators to estimate your payments and affordability in just minutes. These tools can help you understand how much of your rent will go toward buying the home and whether it’s a good fit for your budget.

Rent Your Way to Homeownership: The Benefits

For people with limited funds or poor credit, rent-to-own can offer some great advantages:

No Need for a Big Down Payment: You won’t need to save tens of thousands of dollars upfront to buy a house. Instead, you’ll just need the option fee, which is much smaller.
Time to Improve Credit: If your credit score isn’t where it needs to be to qualify for a mortgage, rent-to-own gives you time to improve it. Need to know how to boost your credit? Check out our post on Why Your Credit Score is the Key to Getting the Best Section 8 Housing for tips on improving your credit score.
Save While You Rent: Each month, a portion of your rent goes toward your future home purchase, helping you build equity over time.
Try Before You Buy: Maybe the best feature of rent-to-own is the fact that you get to stay in the home before you decide to buy it. This gives you a good opportunity to see if the house is right for you or not before you make a big decision.

A man gets house keys for his new home.

Can You Use Section 8 for Rent-to-Own?

Yes, it’s possible to use Section 8 to help with a rent-to-own agreement, but it’s not always easy. Some Public Housing Agencies (PHAs) offer programs that allow you to apply your Section 8 voucher toward homeownership, including rent-to-own agreements.

If you’re interested in using Section 8 for rent-to-own, check out our guide on How To Apply for Section 8 Housing Choice Vouchers for a step-by-step walkthrough. You can also learn more about how to Use Section 8 to Buy a Home, which explains how you can apply your Section 8 benefits toward purchasing a house.

What to Watch Out For

Rent-to-own can often be a good choice, but there are many things to be careful about.

Higher Rent: Most of the time, rent-to-own agreements have slightly higher monthly rent because part of your rent goes to buying your future home.
Repairs and Maintenance: Depending on your agreement, you might be responsible for repairs and upkeep of the home while you’re renting it. Make sure you know what’s expected of you before signing any contract.
Non-refundable Fees: The option fee you pay upfront is usually non-refundable. So, if you decide not to buy the home, you won’t get that money back.

It’s important to read the fine print of any rent-to-own agreement and, if possible, work with a real estate attorney to make sure you understand the contract.

Renters Insurance Still Needed: Because you're renting the home UNTIL you own it, it's important to have a renters insurance policy still in place. Many don't realize that if they cause a fire or something else catastrophic happens, they can be on the hook for all the damages. Renters Insurance will likely be mandatory in any rent-to-own program.

Is Rent-to-Own Right for You?

Rent-to-own can be a fantastic option if you dream of owning a home but aren’t financially ready to make the leap. It gives you time to save, improve your credit, and build equity while still having a roof over your head.

But it’s not for everyone. You need to make sure you can keep up with rent payments and handle any responsibilities that come with maintaining the property. Plus, rent-to-own homes often come with higher monthly payments than typical rentals.

Final Thoughts

This may be a good option for you if you aren't ready to buy a home immediately but someday want to own a house. It builds ownership while renting, improves your financial situation, and gets you prepared for homeownership at a pace that works for you.

Just make sure you read the contract carefully and don’t be afraid to get help from a real estate attorney to ensure you're making the right choice.

Rent-to-own could be your stepping stone to finally owning the home you’ve always wanted, even if you’re starting with limited funds or less-than-perfect credit. Why wait? Start exploring your options today and get one step closer to owning your own home!

Frequently Asked Questions

What is a rent-to-own agreement?

A rent-to-own agreement lets you rent a home with the option to buy it later. Part of your rent may go toward the future purchase.

Do I need a big down payment for rent-to-own?

No, you don’t need a large down payment. Instead, you pay an option fee, which is usually between 1% and 5% of the home’s price.

Can I back out of a rent-to-own agreement?

If it’s a lease-option contract, you can choose not to buy the home when the lease ends. However, you may lose the money you've paid toward the purchase.