How to Find Rent-to-Own Homes with Low Monthly Payments

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|10 min read

A rent-to-own agreement is a contract on a house where a tenant pays rent with the option or obligation to purchase at the end of the lease term.

In a time when interest rates are high, rent-to-own agreements are becoming increasingly attractive because they allow buyers to lock in a purchase price today while not having to qualify for a mortgage at today’s high rates.

Maybe you don’t have a great credit score or an excellent income but can’t qualify for a mortgage because you are self-employed or run your own business. Rent-to-own homes can be a beneficial path to homeownership for those who can’t meet the requirements of traditional mortgages.

But how do you find rent-to-own homes with low monthly payments that don’t break the bank?

How Does Rent-to-Own Work?

A rent-to-own contract, also called a lease-purchase agreement, is an alternative path to homeownership that delays getting a mortgage. Think of it as the option between leasing and owning a property.

It’s a contract between a tenant and landlord willing to sell their home, stating that the tenant will pay rent for a set period, and at the end of the lease term, they can purchase the property.

There are two types of rent-to-own agreements:

Lease Option

A lease option allows the renter to purchase the property but does not obligate them to purchase. A lease option, a portion of the rent typically goes toward paying down the purchase price. The renter can choose to proceed with their purchase, or they can choose to walk away from the property.

If the renter walks away from the home, they forfeit the extra funds they have paid on top of the rent.

Lease Purchase

A lease purchase option is more binding than a lease option. Instead of having the right to walk away from the home, the renter agrees to purchase the house at the end of the lease.

These agreements usually require a considerable down payment or higher monthly payments that result in a down payment (more than a lease purchase). The lease purchase is often longer than a typical lease, usually spamming a three-year term.

If the renter cannot complete the purchase at the end of the lease purchase agreement, they can negotiate with the seller or have to walk away from the property and their down payment.

A rent-to-own contract, whether a lease option or a lease purchase agreement, requires a willing seller and a willing tenant/buyer. Both parties must sign a written rent-to-own contract.

A rent-to-own contract must include:

  • A purchase price. The purchase price is usually set at the beginning of the lease, giving the tenant a clear target and understanding of how much they will owe at the end of the lease. Tenants benefit from a fixed price if the market appreciates, but the seller benefits if the market falls. Both parties take on a risk that market conditions will change.
  • Conditions outlining how maintenance and repairs are handled. The responsibility for maintenance and repairs during the lease term can vary by contract. It’s important for these responsibilities to be clearly outlined to avoid potential conflict.
  • The option fee. The option fee is an upfront payment made by the tenant to the landlord. It is sometimes referred to as “option money” or “option consideration.” Paying the option fee gives the tenant the right to buy the home. Option fees vary by contract but are usually a small percentage of the purchase price.
  • Rent credits. In a rent-to-own agreement, the tenant pays rent (usually higher than the property’s market rent), and a portion goes toward paying down the purchase price. A rent credit refers to the portion of the rent payment set aside and later applied towards the home’s down payment or purchase price, should the tenant proceed with purchasing. The portion of rent that goes toward a rent credit must be included in the contract.
  • The lease term. The lease term outlines how long the tenant has to arrange funds to purchase the property. Typical lease terms of a rent-to-own agreement are three years.

A detailed lease option agreement must be executed with all necessary conditions surrounding the deal. The contract process protects both the landlord and tenant.

Benefits of Rent-to-Own Homes for Tenants

Rent-to-own contracts are an unconventional path to homeownership, but they can be beneficial depending on your circumstances. They offer an excellent opportunity for securing a property, paying down a purchase price, and building equity while not actually owning a home.

Tenants looking for these kinds of deals are often not able to complete a traditional home purchase, often because they can’t qualify for a mortgage. This structure allows them to circumnavigate conventional loans for a set period while providing a sense of homeownership.

During the lease period, the tenant has the time needed to arrange their finances so they are ready to get a loan when the lease terminates. Furthermore, a portion of their monthly rent payments go toward the purchase price, allowing them to build equity. In contrast, in a traditional rental agreement, their payments would be a complete expense.

Having a locked-in purchase price on a rent-to-own property gives the tenant a clear target to aim for. They know how much money they need to qualify for at the end of the term and can work with their mortgage broker and employment circumstances to reach that goal.

Furthermore, tenants are protected if market conditions change and the home’s value increases. They don’t have to worry about being priced out of the market because their purchase price is already locked in.

A rent-to-own agreement often gives tenants the flexibility to choose not to purchase the home at the end of the lease. This flexibility means they can live in the house before committing to purchase, allowing them to test out the property and the neighborhood.

Tenants that choose a rent-to-own agreement enjoy a greater sense of homeownership. In many cases, they have more freedom to customize or improve the property than a standard lease agreement.

In addition, tenants who plan to complete the purchase are often motivated to make improvements to the property so they can increase its value, making it easier for them to obtain traditional financing down the road.

Downsides of Rent-to-Own Homes for Tenants

While rent-to-own homes have considerable benefits for tenants, there are also several downsides. Rent-to-own agreements typically have higher monthly payments than traditional renting, especially in regions with high home prices. This is because a portion of the rent is allocated to rent credits. However, tenants need to be able to handle the higher monthly rent payments.

Lease options give the flexibility of walking away from the deal, but the consequence is that the option fee is almost always non-refundable. Should the tenant choose not to purchase, they forfeit their investment as consideration for the time the owner held the property off the market.

Another downside of these agreements is that the locked-in purchase price might not work in the tenant’s favor. If the real estate market goes down, the tenant may end up paying more than the market value for the home, making it even more difficult for them to get a conventional mortgage loan.

Lastly, seeking out a rent-to-own home to purchase opens you up to the risk of potential scams. The rent-to-own market can sometimes attract unscrupulous sellers who may not be transparent about the terms of the agreement or the property’s condition. For this reason, it’s important to work with a real estate attorney, to have a title search done, and to have a home inspection carried out before you sign an agreement. You want to ensure you understand the property condition and that your stake is protected.

Steps to Find Rent-to-Own Homes with Low Monthly Payments

If you are looking for a rent-to-own home with low monthly payments, it’s important to know that you need to be patient and tenacious.

Typically, rent-to-own homes have higher monthly payments to account for rent credits, so if you’re aiming for low monthly costs, you will need to take your time and negotiate creatively.

Determine Your Budget

Start by obtaining a complete understanding of your financial situation. While you may think you know how much you can afford in monthly rental payments, you need to know how much you can qualify for in a mortgage. For most, these figures are not the same. 

It’s crucial that your current income can support the mortgage payment amount, even if you need to make some changes (such as improving your credit score) to qualify. Otherwise, you may have to walk away from the property at the end of the lease term. Get a mortgage broker’s advice to help you set a budget for a rent-to-own home.

Once you have a realistic budget that considers both your current ability to pay and the likelihood of getting approved for a mortgage loan in the future, you can start your search.

Utilize Specialized Websites and Platforms

If you want to find rent-to-own homes, the first place to start is a detailed online search. Many websites allow you to find homes that are available or potentially available to rent-to-own. Most require you to make an account to browse homes, and others require you to pay a fee to access complete information about the property.

Here are some of the top online resources for finding rent-to-own homes:

  • Rent to Own Houses
    Rent to Own Houses is a website that allows you to set your monthly budget when starting your search, create an account, and browse listings.
  • Rent To Own Labs 
    Rent To Own Labs is a convenient online website showing rent-to-own homes with the monthly rent on each listing. The site makes it easy to find properties that fit a budget. Once you’ve located a property you want, you can register and get the full property details.
  • Zero Down
    Zero Down is a growing platform that markets rent-to-own homes but also handles estimating budgets and mortgage pre-approvals. Zero Down takes on the position of the lender and landlord. Users use Zero Down to estimate their budget and find a home. Once they’ve sourced the property they want, Zero Down purchases the home for them and establishes a lease option agreement with the user. Zero Down gives its users the flexibility of finding a rent-to-own home while allowing them to walk away from the deal if they choose.
  • Craigslist
    While Craigslist might sound like a blast from the past, it’s still an excellent resource for local listings and still a commonly used platform for real estate listings. Many owners list their properties when they are trying to avoid real estate agent commissions or if they prefer an alternative selling strategy. Search for “rent-to-own,” “lease option,” and “for sale by owner” listings.

Engage with Real Estate Agents Specializing in Rent-to-Own

Real estate agents are often the best resource for finding rent-to-own homes. Agents specializing in rent-to-own homes deeply understand the unique market, including the requirements of rent-to-own contracts. 

A benefit of working with a specialized real estate agent is that they are skilled at talking to potential landlords/sellers and know how to find properties that match your specific needs and financial situation. With access to the MLS and a large network, they can often access a broader range of listings that aren’t publicly advertised. Their services open doors to opportunities that would otherwise remain hidden. 

Moreover, agents can help negotiate terms in their client’s best interest. They understand market trends and can advise on the fair market value of properties, ensuring that you don’t overpay. Their negotiation skills can be instrumental in securing a lower purchase price and monthly payments, protecting you from future market fluctuations.

Lastly, a real estate agent’s professional experience helps ensure the legitimacy of rent-to-own contracts. They help clients avoid scams and work with your real estate attorney to ensure the agreement is legally sound. Their service gives tenants extra protection and confidence in their investment.

FastExpert makes finding real estate agents who specialize in rent-to-own options easy. With FastExpert, you can quickly identify, research, and connect with top agents with a proven track record in facilitating rent-to-own agreements.

Consider Properties in Emerging Neighborhoods

Not all sellers will be open to a rent-to-own option. Most want to sell directly so they can move on to their next real estate purchase. Finding owners of properties that you are interested in purchasing can be challenging. Often, it means making some compromises.

Property owners in emerging neighborhoods or gentrifying areas are often more motivated by a lease option. Their motivations may lie in the fact that the area is difficult to get financing in, that they are in financial hardship, or that the property needs considerable repair. For others, the cash flow of monthly rent may be financial motivation enough to delay a sale. When searching for a rent-to-own home, it’s crucial to work with motivated sellers, and they often own properties in up-and-coming areas.

However, investing in an emerging neighborhood requires carefully assessing its potential. Research the area’s development plans, understand the growth timeline, and gauge the commitment from local authorities and private investors. This insight can help you predict the neighborhood’s trajectory and make a more informed decision.

Emerging neighborhoods might still be developing their identity, services, and amenities. While this can be an opportunity, it also means that as a resident, you will have to adapt to changes and the potential growing pains as the area evolves.

Consider Properties in Need of Repair

Properties with deferred maintenance and needing considerable repair often have more motivated selers willing to sell under a lease purchase agreement. If you see a home’s potential but don’t have the funds to purchase it, a rent-to-own agreement can give you the financial flexibility to secure the home without financing. During the rental period, you can make upgrades and repairs, adding value to the house.

The structure of a rent-to-own contract allows tenants to build equity in a property before they take on full ownership. This strategy can help them secure better financing terms by keeping the purchase price low and building equity in the property. Furthermore, it often helps keep property taxes lower (depending on the jurisdiction) by keeping the purchase price below market value.

If you’re planning a remodel project on a rent-to-own home, it’s crucial that your rental agreement is air-tight. Furthermore, you must be confident in your ability to complete the purchase when the lease expires. Lastly, lease agreement needs to protect your interest in the home. Make sure that the seller doesn’t have the right to reclaim the property after you have invested time and money. For these reasons, tenants must work with a real estate attorney during the rent-to-own process.

Evaluating and Negotiating the Rent-to-Own Agreement

Like any real estate transaction, a rent-to-own contract requires negotiation and evaluation of terms. A well-negotiated agreement will significantly impact your financial stability and help keep your monthly payments low.

If neither party works with a real estate agent, employ a real estate attorney to draw up a rent-to-own agreement. When making an offer in real estate, it must be done in writing. To expedite the negotiation process, deliver your offer in a partially drafted contract that can be accepted or countered. 

During the offer drafting process, you should:

  • Decide if you want to enter a lease purchase agreement or lease option contract.
  • Determine a final purchase price if the option is exercised.
  • Specify monthly rent payments and lease term length.
  • Break down how much of the monthly rent goes toward rent credits.
  • Include an option fee.
  • Outline who is responsible for maintenance responsibilities.

Maintenance and repair responsibilities are critical components of rent-to-own agreements. In traditional renting relationships, the landlord handles repairs and maintenance. However, these responsibilities might fall partially or entirely on the tenant in rent-to-own situations. To avoid disputes, ensure that the agreement explicitly states who is responsible for what types of maintenance and repairs.

The option fee is a major consideration because it is the biggest cost at the beginning of the contract. Because it’s usually non-refundable, tenants need to be comfortable with the amount. However, the option fee also motivates the seller to enter the lease-to-own situation, so it needs to be reasonable. Negotiating terms that work for all parties is important for a successful deal.

Negotiating with the Property Owner

If you want affordable rent-to-own options, you must be prepared to negotiate. Effective negotiation is key to securing favorable terms in lease purchase agreements.

When entering into conversations with owners, here’s some tips to keep in mind:

  • Research Market Values: Before even approaching a landlord/seller, research the market conditions of the target property so you have a solid understanding of its value. Your research will help you set boundaries and give you the necessary knowledge to leverage in negotiations.
  • Negotiate Rent and Rent Credits: You don’t have to accept the rent an owner is marketing. Negotiating monthly rent payments is one of the best ways to secure an affordable one. This process could involve paying less rent towards rent credits or offering a higher option fee.
  • Be Flexible in Terms: Being accommodating on other terms, such as the length of the lease or covering maintenance. Flexibility can help you negotiate the conditions that are most important to you (such as a lower monthly payment).
  • Get a Legal Review: Before finalizing a lease purchase agreement, have a real estate attorney review the terms. They can warn you of any pitfalls and advise you on how best to protect your investment.

If negotiating is not your strongest skill set, consider engaging a real estate agent to handle this process. While their services incur a commission, they can help you secure a lower purchase price, low monthly payments, and other terms that work in your favor.

Potential Pitfalls to Avoid in a Lease-to-Own Contract

When entering into a lease-to-own contract, you must be aware of common pitfalls that can jeopardize your path to homeownership. Avoiding these mistakes to save you from financial strain, legal issues, and disappointment:

  • Failing to Complete Full Property Due Diligence
    Just because you aren’t purchasing the property when you sign a lease purchase agreement, doesn’t mean you don’t need to inspect and vet the property. This process includes a professional home inspection and title search to reveal any potential problems.
  • Not Consulting with a Real Estate Attorney
    A legal expert should review the contract terms to ensure they are fair and protect your interests. They can also clarify legal jargon, explain your rights and responsibilities, and highlight any red flags in the agreement.
  • Overlooking the Alignment of Monthly Payments with Market Values
    It’s common for the agreed-upon rent in a lease-to-own contract to be higher than the typical market rent. This premium is justified by the portion of the rent that contributes to the eventual purchase of the home (rent credits). However, assessing whether these payments are reasonable and in line with current market conditions is important.
  • Neglecting to Research the Seller’s Background
    It’s a sad truth that some sellers have illegal intentions in the rent-to-own space. Ensure that the seller owns the property outright or has the legal right to enter into a lease-to-own agreement.
  • Ignoring Exit Clauses and Penalties
    Not paying attention to the exit clauses and penalties in the contract is a common oversight. Understand the conditions under which you can exit the agreement and any penalties or forfeitures (such as losing the option fee) that might apply.
  • Underestimating the Importance of Financing Terms
    It’s essential to have a realistic plan for obtaining a mortgage to purchase the property. This plan might involve improving your credit score or saving for a larger down payment. Without a clear strategy for financing, you risk losing the property and any money paid towards the purchase.

Securing Your Rent-to-Own Property with FastExpert

Though less conventional, the journey to homeownership through a rent-to-own home with a low monthly payment is possible. To succeed, you must be willing to approach potential landlords and negotiate a contract that best fits your circumstances.

Working with a professional real estate agent who specializes in rent-to-own contracts can be a game changer. They source qualifying properties, vet sellers, and assist in negotiations. Engaging an agent in the rent-to-own process will help you protect your interests and negotiate the right deal for you.

FastExpert helps you connect with top local real estate agents specializing in rent-to-own homes. Browse local professionals, read reviews, and explore track records to find the right agent. With the right approach and professional help, finding a rent-to-own home that meets your needs and budget is entirely achievable.

Start your search with FastExpert now.

Kelsey Heath

Kelsey Heath is a real estate content specialist with an extensive background in residential, industrial, and commercial property. She has been involved in the industry for a decade as a professional and personal investor, gaining a deep understanding of the market and trends. With a passion for written communication, Kelsey loves helping people understand the sometimes-complicated concepts behind real estate and is now a sought-out guest and ghostwriter.

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