Why not Rent to Own?

There are a lot of dangers to Rent to Own. Is there a safe way to rent to own? What are some other options?

Scams

All of the ads I have seen lately for Rent to Own are scams. It is not very hard to tell that they are scams. If you are on Facebook, just click on or search the name of the person who has listed the house. If that exact same house is supposedly in more than one location, it’s a scam.

You could also search the words in the ad on Google in quotes and find the exact same ad listed on Craigslist and other places. Sometimes they have photos of different houses, but usually it is the exact same house each time.

Another red flag is the price. If it looks too good to be true…

Why? What’s the Scam?

Sometimes the ad just sends you to a page for more information that is full of ads. They get paid per click or view by the advertisers on that page.

Sometimes scammers want you to fill out an application, revealing information that can be sold or would allow them to steal your identity.

Sometimes the scammers go so far as to get you to give them money. They want you to send first, last and a deposit for a house that doesn’t exist or that does exist, but isn’t theirs.

What If the Seller Really Owns the House?

Sometimes the seller really isn’t a scammer, but they don’t actually own the house. As long as there is still a mortgage on the house, the house can still be foreclosed on. You might be making Rent/Mortgage payments, but if the person doesn’t pay the mortgage, you can lose your home.

As long as the home is still in someone else’s name, they can get a mortgage, second mortgage… Use the house as surety for a bail bond, have a lien attached to pay a debt or a court judgment. Unpaid taxes, HOA (homeowners association) fees, county or city fees… there are a lot of ways debt can be attached to a property.

If a carpenter, plumber or even a wallpaper hanger, anyone who provides home improvement, isn’t paid, they can file a claim or lien on the property.

That is one reason a title search is done when you buy a property. It discovers any claims or liens on the property. The person selling the property may not even be aware of an old debt that can give someone else a claim on the property.

I have been told that not all Rent-to-Own are scams. But they are certainly not your best option.

If you love a house you are already renting, perhaps you can work something out with your landlord, but be VERY cautious. Even good, well meaning people can unintentionally sell you a house that you end up not actually owning.

Better Options than Rent to Own

Rent With Option to Buy

Rent With Option to Buy is a contract that sets a selling price for the house you are renting. Sometimes it is part of your lease, sometimes it is a different contract. It works just like any other legal offer to buy or sell. Read the contract.

Seller Holding Mortgage

If the seller owns the house outright or you can afford a large enough down payment to pay off what is remaining on the mortgage, the seller can act as the lender. The seller would retain the same rights over the property as a bank who loans you the money to buy a house. But the seller could not continue to use the house as an asset. The seller can no longer take out a loan using the house as security.

Why would a seller hold the mortgage?

Why would a seller offer owner financing?

The seller may earn more interest from the mortgage than if they put the money in the bank.

The house can be sold As Is. A bank usually won’t offer a mortgage if the house is not in good repair.

Bank financing can sometimes take a long time. The person selling the home might want money faster.

Often a seller includes a balloon payment. A balloon payment is a large single payment at the end of the loan term to pay whatever remains on the loan. That means you have a certain amount of time to pay off the rest of the money you owe for the house. You can pay off the loan by getting a conventional mortgage loan or if you reasonably expect enough money in the future.

Don’t expect to be able to save up enough money to make a balloon payment. Take the time you have to improve your credit score and make any needed repairs to the house so that you can get a mortgage on it with a good interest rate.

Rent to Own is a real case of Buyer Beware!