Options vary with ‘rent to own’
Q: I’m considering buying a house on a “rent to own,” and I’m not sure how that works. Does it mean I rent the house, then if the sellers decide to sell it, I get a first crack at it?
A: It can work a few ways, and people often mean different things when they use the terms. The definition you gave above (renting a house and having an option to buy it if the seller decides to sell) is called a “lease option.” It’s quite literal. You are just a tenant, with no guarantee you’ll ever get the chance to buy the house.
The term you used above, “rent to own,” more often implies that some kind of agreement has been reached between the owner and the renter and that the renter is in fact buying the house, just not quite yet. It often involves a (sometimes non-refundable) down payment, a small portion of the rent going to more of a down payment (sometimes refundable, sometimes not), and an agreed upon price or a method by which you will determine the price (appraisal, Realtor market analysis …). There are many ways to structure something like this, but it’s important to make sure the renter and the owner are talking about the same thing.
It’s also important not to confuse it with a third option called a Real Estate Contract in which you are actually buying the house (one payment at a time as with a mortgage) directly from the seller. In this situation (and possibly in a lease purchase), you will want to use an escrow company to keep track of the payments and how much principal is being paid with each installment.
All of that said, have a candid conversation with the owner of the property and make sure you are very clear on what’s being suggested and if the monthly payment is rent, rent and down payment, or a mortgage payment. If you have any doubts about the situation, please contact a real estate attorney or let the seller know you’d like to have a Realtor represent you. Such decisions shouldn’t be made lightly, especially when they possibly involve large amounts of your money that may be gone forever.
All of that said, any of these options can work out very nicely as long as everyone understands and agrees to the terms of the agreement. Get everything in writing. Ask for advice from experts, and you might find yourself a great way to buy a house if you can’t get regular financing.