Rent to Own...a Home?

We're pretty sure you can't put a home on layaway, and we certainly wouldn't recommend it. Miss a few payments and you've lost your whole deposit! But have you ever considered renting to own a house?

Most people think the rent to own option is only for things like furniture and electronics, and it may not be the best deal out there, either.

Read more on Money Crashers → Beware of the Real Cost of Rent-to-Own Stores for Furniture, Appliances & Electronics

We know, we know. We almost always tell you to just wait and focus on your credit and savings before you buy a home. And we still think that's a good idea, but there is one other option that you can explore: lease-to-own homes.

So how does it work?

Once you find a seller that’s willing to do a lease-to-own contract, you’ll pay option money up front, which can be up to 7 percent of the purchase price, so you still aren't off the hook when it comes to saving for a down payment! After that, you’ll be responsible for a little more than the typical rent each month. Some of that money goes in an escrow account, so it’s kind of like forced savings. When your lease is up you can use your money in escrow and everything you saved in the meantime (because we know you were working on your savings and credit!) for the down payment.

If anything goes wrong during your rental period, you’re free to walk away from the sale, but you may lose money. Before you do change your mind, check your contract and state laws. You might lose your option money and the money you have in escrow.

Lease-to-own definitely isn’t a silver bullet to making your home-buying dreams come true. There are’s still a lot of risks. If your seller isn’t paying the mortgage, your home could get foreclosed on and you’ll lose all the money you saved up.

You have a lot of responsibility, too. Check your contract. Often, if you’re one day late on your payments, you can lose your credit for that month. And it’s still up to you to work on your credit, save your money for a down payment, and qualify for your mortgage. If you don’t, you’ll end up losing your house, since most lease-to-own agreements can’t be extended. The most important thing you should do is read your contract very carefully, and go over it with a qualified professional like a real estate attorney, to make sure you can meet all of the conditions. A misstep could mean losing a lot of money.

So it’s up to you. Do you wait and fix your credit and savings? Or do you take a chance with a lease-to-own home?