This could be your entry into homeownership

8 Things to Do Before You Shop for a Rent to Own Home

by Nicholas Brown

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Given the housing market and current interest rates, buying a home now is a very timely opportunity. As Trulia's Rent vs Buy Winter 2014 Report states, "homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas." Unfortunately, not all aspiring homeowners are qualified for a home loan, whether it be due to imperfect credit or lack of down-payment. This is where Rent-to-Own comes in. But, like any housing option, leasing a home is not always that simple, and requires a lot of research and professional advice.

What is Rent-to-Own?

A great opportunity for people who are having difficulty securing mortgage loans, Rent-to-Own agreements allow you to make preparations for home ownership while living in a home of your choice. The popularity of Rent-to-Own, also commonly known as Lease-Option, is due to its flexible nature that allows the tenant-buyer to pay rent while getting their credit in order at the same time accumulating down payment for the eventual purchase of the property.

Related: Renting Your House 101

With Lease-Option's flexibility, the agreement can be tailored to best suit the needs of both the buyer and seller. The benefits of such a housing option are strongly appealing to young families who lack substantial savings, as well as people who have imperfect credit. In addition, Rent-To-Own arrangements are also a great opportunity for property owners who are having difficulty selling the property and finding mortgage-qualified buyers.

The Ingredients to a Successful Rent-To-Own Experience

Understanding all the moving parts of Rent-to-Own before getting involved is one of the most crucial ingredients to success. Many of the people who are dissatisfied with their Lease-Option experience engaged in it without educating themselves well and taking all the necessary steps to protect themselves and their investments. Because we want everyone to have a successful Rent-to-Own experience, we've assembled this brief checklist to give you an idea of where to start.

  1. Speak with your financial advisor before you start. Most people gravitate to Rent-to-Own because there is some part of their financial picture that is preventing them from securing a favorable mortgage. Meeting with a financial advisor before you consider a RTO will give you a better idea of what you will need to do to secure a loan in the timeframe established by the agreement. Speak with a loan officer to see what type of shape you're in.
  2. Do thorough research on your seller. Know who you are getting involved with before you do. Perform a thorough background check on the owner of the property, and consider getting a professional check done via a landlord checking service. Check public records listings for any illegal activities, a history of liens, foreclosures, etc. You can ask neighbors about the owner's reputation and find him/her online: Google, Facebook, Twitter. Check into whatever you can find.
  3. Research the property, too. While you're looking into the seller, check to make sure the property isn't in pre-foreclosure or foreclosure. Consider hiring a title insurance firm to be extra sure the title is clear on the home.
  4. Read your agreement. Triple check it. Talk to a real estate lawyer. Read and reread every part of the agreement, so you know it up and down. List off anything in a home that can cost money and make sure it is accounted for. Consult with professionals as needed. The lease-option agreement is the most important part of the process for obvious reasons. You need to be especially thorough with it in every way.
  5. Need legal advice?
    Visit NOLO today for your legal needs.

  6. Start fixing your financial profile immediately. Whatever your financial advisor or loan officer said you needed to do to secure a mortgage? Get started right out of the gates. As strong as the urge is, don't go buy a living room set for your new home on your credit card. This time is where you prove to the bank that you are a safe investment for a loan.
  7. Related: Tips on rebuilding your credit score before buying a home

  8. Secure your deposit and rent credit in escrow. A third party escrow account is a great way to store your rent credit and option fee securely. Make sure that your deposit doesn't get stolen if it turns out your seller is a fraud.
  9. Be sure to pay on time and invest on improvements with intent. Everything you do while you're renting your home during the lease term will determine whether or not you are a winner at the end. Play it smart. Make all your payments on time, including rent, utilities, and credit card payments. When making improvements on the home (if your agreement allows it), be sure that you are making the right ones. Some improvements have much higher return value than others.
  10. Be sure you're ready to start before you do. Can't reiterate this enough. Before you start, be sure that you are ready and willing to take the steps necessary to complete the sale. Making sure you are on the path to securing a loan and responsible home ownership before you start will mean the difference between success and frustration or heartbreak.

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For people who want to get into a home sooner rather than later despite financial barriers, Rent-to-Own offers a one-of-a-kind opportunity. Being fully prepared and having the needed requirements in order before you start is key to a successful Rent-to-Own transaction. Rent-to-Own in itself does not a scam make. Not doing enough research and not seeking professional advice where needed is to be blamed for that. As long as you're equipped with the knowledge on how to best protect your interests and the right people to consult with, you can start counting on a Rent-to-Own happy ever after.

Nicholas Brown has been writing since 2008. He holds a Master of Arts in English from Northeastern University. His professional interests include sustainable living, personal finance, real estate and investment trends. He writes for

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