Are Rent-to-Own Homes Rent-to-Own Scams?

If you don’t have the cash to buy a laptop, and your credit score is not high enough to take out a loan for a laptop, what can you do? It used to be that you were out of luck and would have to save your money until you could afford to make the purchase, but that is not what many consumers are doing today. Many are falling for rent-to-own scams that allow them to take home laptops and other items now while making payments for one to three years in the future.

This seems like a great deal, since consumers get the items they want now but don’t have to pay for the items entirely right now. Unfortunately, there are many rent-to-own complaints from consumers who have been taken advantage of with these deals. The ending price paid is substantially higher than the products are actually worth, and some companies take the items back if a single payment is missed. Consumers end up losing all of the money paid into the product, which is why these arrangements are considered rent-to-own scams.

Are Rent-to-Own Homes Different?

Rent-to-own homes are often painted with the same brush of rent-to-own scams by consumers who do not understand the housing market. The “rent-to-own” tag is quite deceptive because it can mean different things in different industries.

In the appliance and furniture industry the term refers to agreements to make payments on products over time. In the housing industry, the term refers to agreements allowing homeowners to accept rental agreements that give the renters the option of purchasing the home at the end of the agreement. When you look at the details of these agreements, you see how they are different from rent-to-own scams in other industries.

How Does Rent-to-Own Work?

A rent-to-own agreement for a home is basically a long term lease with the option to purchase the home at the end of the lease. You pay your rent each month just as you would with a standard rental agreement, but the finer details are different:

1. You pay a bit more than a standard renter would pay. The extra money is saved in an account to be applied to your down payment if you decide to purchase the home at the end of your lease agreement. If you do not purchase the home, then this money goes to the homeowner.
2. Some agreements offer a lease option, which substantially increases the down payment you can earn to purchase the home at the end.

Rather than signing another rental agreement at the end of your lease, a rent-to-own agreement allows you to become the owner of the home at the end of the agreement. (Here is a sample lease option contract).

The Bottom Line

Rent-to-own homes are clearly not rent-to-own scams. They work in the favor of renters who dream of owning their own homes, but who do not have the money to pay a down payment or the credit to finance a home. These agreements are legitimate options for those who want to own their own home but cannot do so right away. Ultimately, it's up to you to decide whether a lease option is right for you - but this arrangement is clearly a completely different thing than those rent to own scams in the furniture and appliance markets.