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Rent-to-Own Calculator
Seller says "rent-to-own gives you time to build credit!" Sure. It also gives you time to overpay on rent while they lock you into an inflated purchase price. Let's see if the math actually works—or if you're better off renting cheap and saving on your own.
Rent-to-Own Terms
Market Comparison
Cost Analysis
⚠️ Things That Can Go Wrong:
• Seller doesn't maintain property (you're stuck renting a dump)
• You don't qualify for mortgage in 2 years (lose option fee + credits)
• Home value drops (you're locked into HIGHER price)
• Seller goes into foreclosure (bank sells house, you lose everything)
Rent-to-Own: The Expensive Path to Homeownership
Rent-to-own sounds perfect: live in your future home while building credit and saving for a down payment. Reality? You're paying above-market rent, giving a non-refundable option fee, and locking into a price the seller inflated 10-15%. If anything goes wrong—you lose your job, seller forecloses, you can't get a mortgage—you walk away with nothing.
💡 Real Talk from Jennifer Park, Real Estate Attorney
I've seen 50+ of these deals. Majority fail. Tenant-buyers think they're "basically homeowners" so they stop saving aggressively. Two years later: credit still sucks, they have$8k saved but need $20k to close, can't qualify for a mortgage. They walk away. Option fee + rent credits? Gone. Seller keeps it ALL and re-lists the house. Meanwhile tenant paid $400/month ABOVE market rent for 2 years. Total loss: $10k option fee + $9,600 extra rent + $9,600 lost rent credits = $29k down the drain. Brutal.
How Rent-to-Own Actually Works
Step 1: The Option Agreement
- Pay option fee (2-7% of purchase price) upfront
- This gives you the RIGHT to buy, not obligation
- Locks in purchase price for 1-3 years
- If you don't buy, you lose this money (non-refundable)
Step 2: The Lease
- Sign a rental lease (same as any rental)
- Pay monthly rent ABOVE market rate
- Extra portion (10-30%) goes toward "rent credit" = future down payment
- You're responsible for maintenance (some contracts—read carefully!)
Step 3: The Purchase
- At end of lease term, you execute the purchase
- Get a mortgage (must qualify—this is where most fail)
- Option fee + rent credits typically become your down payment
- Close like a normal home purchase
⚠️ Common Mistake: "Rent Credits = Automatic Down Payment"
NO. Rent credits are a PROMISE. They only matter if you actually buy. If you can't get a mortgage (credit still bad, lost your job, house appraises low), the seller keeps ALL rent credits. You don't get them back. And many sellers write contracts where rent credits are forfeited if you're late on rent even ONCE. Miss rent by 3 days? Lose $10k in accumulated credits. Read. The. Contract. With. A. Lawyer.
The Math: Rent-to-Own vs Traditional
Rent-to-Own Example:
- Purchase price (locked): $250k
- Option fee: $10k (4%)
- Monthly rent: $2,000
- Rent cream: $400/month (20%)
- Lease term: 24 months
Total costs:
- Option fee: $10,000
- Rent paid: $2,000 × 24 = $48,000
- Total paid: $58,000
- Rent credits earned: $400 × 24 = $9,600
- Effective down payment: $10k + $9.6k = $19,600
vs Renting Normally & Saving:
- Fair market rent: $1,600/month
- Rent paid: $1,600 × 24 = $38,400
- Extra cash you could save: ($2,000 - $1,600) × 24 = $9,600
- Plus option fee saved: $10,000
- Total savings: $19,600 (SAME as rent-to-own, but liquid!)
Difference? Rent-to-own LOCKS that $19k into one property. Traditional saving keeps it flexible—you can buy a better house or walk away risk-free.
When Rent-to-Own Makes Sense
DO IT if:
- You're 12 months away from qualifying for a mortgage (recent divorce, bankruptcy just discharged)
- You've fallen in LOVE with the house and will lose it otherwise
- Home prices are rising 10%+/year (locked price saves you money)
- Seller's purchase price is at or BELOW current market value (rare but happens)
- You have 90% certainty you'll buy (job security, income growth trajectory clear)
DON'T DO IT if:
- You could qualify for FHA 3.5% down TODAY (way cheaper than rent-to-own)
- Seller inflated purchase price 10-15% above comps
- Your credit/income situation won't improve in 2 years
- You're doing it because "I can't save money otherwise" (discipline problem, not credit problem)
- Home prices are flat or falling (you're locked into overpaying)
💡 Jennifer's Contract Red Flags
Walk away if contract includes: 1) "Seller can cancel with 30 days notice" (you lose all leverage), 2) "Tenant responsible for ALL repairs" (even roof/HVAC—you're paying to fix their house), 3) "Rent credits forfeited if late once" (predatory), 4) "Final purchase price will be determined by appraisal" (no locked price = no point), 5) "Option fee non-transferable upon purchase" (they keep it even if you buy). Have a real estate lawyer review for $300-500. Worth it.
Common Rent-to-Own Scams
The "Foreclosure Flip":
- Seller is behind on mortgage (you don't know)
- They collect your option fee + rent
- Bank forecloses
- You get evicted, lose everything
- Protection: Title search confirms no liens before signing
The "Maintenance Dump":
- Contract says "tenant responsible for repairs"
- Furnace dies ($5k), roof leaks ($8k), sewer backs up ($3k)
- You're stuck paying while RENTING
- Protection: Insist seller covers >$500 repairs or walk
The "Inflated Price":
- House worth $200k today
- Seller locks price at $240k
- You pay premium for 2 years thinking you got a deal
- House appraises at $210k when you try to buy
- Lender won't give you $240k mortgage
- Protection: Get independent appraisal BEFORE signing option agreement
Better Alternatives to Rent-to-Own
1. FHA Loan (3.5% down):
- $250k house = $8,750 down + $6k closing = $15k total
- Credit score 580+ qualifies
- Why wait 2 years and pay $10k option fee when you could buy NOW?
2. Down Payment Assistance Programs:
- Many states offer 3-5% down payment grants
- First-time buyers often qualify
- Google "[your state] down payment assistance"
3. Rent Cheap + Save Aggressively:
- Rent a cheap apartment ($1,200 vs $2,000 rent-to-own)
- Bank the $800 difference
- In 24 months: $800 × 24 = $19,200 saved
- Buy any house you want with that down payment
Reviewed by Jennifer Park
Real Estate Attorney (12 Years)
Jennifer has reviewed 200+ rent-to-own contracts. Her advice? Only do it if traditional buying is IMPOSSIBLE today and you're 95% sure your situation improves in 2 years. Otherwise, rent cheap and save.
Frequently Asked Questions
How does rent-to-own work?
You rent a house with an option to buy later (usually 1-3 years). Pay upfront option fee (2-7% of price), monthly rent ABOVE market rate (extra goes toward down payment as 'rent credit'), then buy at locked-in price. If you don't buy, you lose the option fee and rent credits. It's a way to lock in a price while repairing credit or saving for a mortgage—but you pay a premium for this flexibility.
What's a typical rent-to-own option fee?
2-7% of purchase price, usually 3-5%. On a $200k house: $6k-10k upfront. This is NON-REFUNDABLE. If you walk away or can't qualify for a mortgage at the end, that money is gone. The option fee locks in your right to buy—it's NOT a down payment yet. When you buy, it usually gets credited toward your purchase (but read the contract—some sellers try to keep it).
How much rent credit do you get?
10-30% of each monthly rent payment, typically 20-25%. Example: $2,000/month rent, $400 goes to rent credit (20%). Over 24 months that's $9,600 saved toward down payment. Problem: the $2,000 rent is ABOVE market ($1,600 fair rent) because landlord is giving you credit. You're basically paying extra rent to save for your own down payment. Math it out—often cheaper to just rent normally and save separately.
Is rent-to-own a good idea?
Rarely. GOOD if: 1) You need 2-3 years to fix credit (divorce, bankruptcy recovery), 2) You have stable income but low down payment, 3) You LOVE the house and would lose it otherwise, 4) Home prices are rising fast (locked price is a win). BAD if: 1) You're not 90% sure you'll buy (you'll lose thousands), 2) Seller inflates purchase price 10-15% above market, 3) You could qualify for FHA 3.5% down NOW. Only do it if traditional buying is impossible today.