Many Hoosiers dream of buying a home but may not have a good credit score or enough savings for a down payment to take a traditional loan.  So, what if a landlord or a company offered the chance to eventually own the house you are renting?  Be aware, while rent-to-own may be a feasible option, it is not always as sound as renting or buying a home. Rent-to-own deals may have more than one catch.  

“Some companies may look to take advantage of individuals who don’t qualify for a traditional loan, but do not want to rent forever and want to achieve the American dream of homeownership,” Attorney General Todd Rokita said. “Our office is committed to making sure Hoosiers are aware and prepared to avoid unfair, abusive, or deceptive business practices.” 

How rent to own works: You sign a lease contract that includes clauses with an option to buy, usually at the end of one to three years of leasing period.  You will pay a premium on top of your monthly rent which does not count towards your down payment.  A well-arranged rent to own deal provides time to build or repair your credit while you gain equity on your future home thus speeding the process to obtain ownership. However, be aware that usually you will still have to get a mortgage on the remaining balance when the lease ends.  

Rent-to-own is sometimes regarded as a great chance to “stop throwing money away on rent.” But what may look like a genuine path to owning a home may end up being a financial burden down the road—these deals can end up being scams.  Consumers should do their research and due diligence before entering into a contract or rent-to-own agreement.  Sometimes too late, the tenant/buyer finds out: 

  • the “seller” doesn’t really own the property 
  • property taxes have not been paid 
  • the house has major issues (lead, asbestos, hidden damages) or is in terrible shape 
  • after the contract is signed the seller does not perform promised repairs, or  
  • the house is in process of foreclosure  

Besides these possible risks, and even in legitimate rent-to own transactions, the contract terms are not always clear nor convenient for the buyer—or may even be flat out tricky. Consumers should be on the lookout for nonrefundable upfront fees, higher rent payments, “miss a payment and you lose the deal” terms, an obligation to buy the property, or being locked into paying more than what the home is worth.  Also, once you opt to buy the home, not qualifying for a mortgage may force you to forfeit any monies you paid on top of your rent.  If you are not sure of your ability to get financing in time, avoid rent-to-own homes. 

If you believe you are victim of unfair, abusive, or fraudulent business practices, please report your encounter to the Consumer Protection Division of Indiana Attorney General Todd Rokita’s Office, which works every day to safeguard the rights of Hoosiers. Visit www.IndianaConsumer.com for more information.