When to Consider a Rent-to-Own Arrangement

The purchase of a rent-to-own property is a great way to enter the world of homeownership. If you are either short of a full down payment and/or closing costs, or find yourself with credit challenges, this may be the way to go for you.

A rent-to-own program, which may also be called a land contract, is entered into by you and the seller/landlord. You live in the property and pay rent, with the option of purchasing. You’ll pay a deposit at the contract signing and you’ll both agree to a closing date when you will purchase the property. In some cases, the landlord will apply a portion of your rent to the down payment and/or closing costs, so you really have an incentive to make the program work.

Time frames

Time frames on rent-to-own agreements can range from a few months to close to a year. Buyers with a credit problem, such as a previous bankruptcy, may require more time to be able to requalify to purchase a property and will be at the longer end of the time frame. Another reason for a longer term would be to enable the purchaser to pay down debt so that his or her income ratios would then fall in line with lender requirements.

Rent-to-own shouldn’t be lightly undertaken: On the agreed-upon date, if you haven’t closed, the seller could either determine what you need to do to complete the process and extend the date, or bring in a new tenant and keep your deposit.

Have an action plan

Ideally, before you enter into one of these agreements, you should be working with a mortgage professional to create a plan of action, so that you have a clear idea of what needs to happen. But whatever the case, rent-to-own programs offer opportunities that may not be available to you otherwise, and are well worth looking into.


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