- When you "rent to buy," "rent to lease," or "rent with an option to buy," you essentially both rent and sign a contract for an option to buy the same house. Programs of this sort are offered by individual landlords, property management firms, nonprofit organizations and local governments. HUD does not offer a program of this sort, however, as it clarifies on its own website, hud.gov. Carefully consider any program using HUD in its advertisement that is not in fact associated with HUD.
- A rent-to-buy contract is a lease and an option to purchase that usually requires a nonrefundable fee paid by the tenant-buyer to the landlord-seller for the right to exercise the option. The option is an opportunity to buy, however, not a guarantee. During the option period the tenant-buyer may purchase the property for the price listed in the contract. The responsibility to obtain financing is the buyer's.
- Rent-to-buy arrangements are rife with the opportunity for deception according to Legal Assistance of Western New York. Landlords understand sufficient income and good credit are required of any prospective property buyer. They have been known to offer rent-to-buy contracts to prospective buyers they know will never qualify for a mortgage during the option period. Once the option period expires, often along with the lease, the landlord can evict the tenants and start the whole process all over again with someone else, collecting another nonrefundable option fee.
- By no stretch of the imagination are all rent-to-buy arrangements scams. Some landlords look at this arrangement as an ideal way to sell a property because it avoids costly real estate commissions. For buyers who maintain good credit and incomes but whose savings are just shy of what is needed to get a loan, rent to own is a foot in the door to home ownership.
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