What is Rent-to-Own?

When looking into a rent to own home, the prospective tenant is looking for the leniency of renting with the eventual freedom of purchasing. Generally speaking, a rent-to-own situation involves taking the unit under the conditions of renting it and eventually forming a mortgage agreement in order to claim full ownership of the property. In this case, the former homeowner works as a landlord for the property until the mortgage is created, which typically has a deadline for the tenant to make the transition.

This option is excellent for those who are interested in buying a property but don't currently have a good-enough credit score or sufficient cash for the down payment. This is where a rent-to-own agreement would be forged. While not considered a traditional means of buying a home, it's widely accepted as a viable means of doing so. In fact, there are laws that focus on rent-to-own as a third option apart from simply renting or buying a unit.

Qualifying for Rent-to-Own

The qualifications can vary drastically. While there are legal regulations for the process, the idea behind a rent-to-own situation is that the tenant is unable to qualify for buying a place normally. In this way, the concept of qualifications for homes rent own is a bit inverse — rather, there are varying terms and conditions that the tenant is expected to meet over a set period of time after moving into the property, leading up to the point when the tenant goes from renting to owning the unit.

Generally speaking, this is the breakdown of how it works:

• The tenant is typically allowed to move in immediately without a down payment
• The tenant's credit score may be poor at the time he or she moves in
• A one-time option money payment can be made to the homeowner that secures the tenant's right to purchase the home after a set period of time, which is usually one to three years
• By the end of the period, the tenant is expected to have improved his or her credit score and financial standing enough to form a mortgage on the home
• In most cases, if the tenant fails to meet these expectations, the option to buy the home per the option payment expires
• The tenant may be allowed to renew the lease with or without another payment of option money
• Option money is usually between 2.5 percent and 7 percent of the purchase price, and in some cases, the option money can be applied to the actual purchase later on
• While option money can be very costly, a typical rent-to-own contract will devote a portion of the rental payments toward the purchase of the house in the long run

Compared to Renting and Owning

The differences between renting, owning and renting-to-own are actually very simple. Renting is for those who aren't looking to buy a place or take responsibility for its repairs, but still need a roof to sleep under. Buying is for those who want a permanent residence to settle down in and have both the credit score and the down-payment funds to afford it. Rent-to-own is for those who want to buy a property but are unable to go beyond renting it for the time being.

Top 5 Routes for "Rent To Own Home"

1. Sfgate.com This article compares rent-to-own versus a normal buying plan.
2. Renttoownlabs.com Conversely, this article compares rent-to-own versus a typical renting plan.
3. Bankrate.com Here, prospective rent-to-owners can investigate the risks of following through with it.
4. Bankrate.com Another excellent piece from the accredited Bankrate website, this article will outline the when and why of rent-to-own.
5. Investopedia.com Finishing the list on a strong note, Investopedia gives its trusted input on how the rent-to-own process works.