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Finding red flags in rent-to-own contracts

Not everyone can afford to purchase a home immediately. A poor financial situation might not allow you to secure a mortgage. Still, even if you possess sufficient financial resources, you may wish to put off a full purchase until later. These situations can make a rent-to-own contract an attractive option.

Rent-to-own contracts provide an opportunity to lease a property with the option to purchase it at a later date. However, these agreements can be complex documents that sometimes pose risks to the signer.

Unclear language

A contract that is vague in your obligations could put you on the hook for more expenses and responsibilities than you bargained for. Read over the contract to see if it clearly defines the length of the rental agreement, the upfront fee, the future sales price and who is responsible for maintenance and repairs.

Pricing risks

Both the buyer and seller must agree on the future purchase price of the home when the lease period ends. If property values rise significantly, the seller may be leaving money on the table. Conversely, if prices drop, you as the buyer may be overpaying and face challenges securing financing.

Above-market rent

Some sellers may charge rent higher than the market rate with a promise to apply the extra money as a purchase credit or down payment. If this option does not sound appealing, you could negotiate for the contract to specify that all extra rent will credit to the purchase or go into an escrow account.


Beware of potential scams. Sometimes sellers do not actually own the property they rent out. There are also rental homes that come with unpaid back taxes or need expensive repairs, or they might also face foreclosure. Thorough research and due diligence before entering into a rent-to-own agreement could keep you from getting on the hook for one or more of these problems.

While rent-to-own contracts can be a viable option for homeownership, people should approach them with caution and a clear understanding of the terms and potential risks involved. As with any legal document, a careful review and negotiation of favorable terms may be necessary.