A Rent to Own Guide

RTO Homes Are Not For Everyone / Who Should NOT Get Into RTO

Entering into a Rent-to-Own agreement is a big commitment. While purchasing a home is always a big step that carries many risks and rewards, being especially smart about RTO is necessary to safeguard your finances and have a positive experience. If you’re wondering whether or not you’re ready to Rent-to-Own, taking time and fully understanding the process is key to your success. Below, we’ve assembled nine quick scenarios to test your preparedness for a RTO agreement.

Choose the phrase that best describes your situation to complete the sentence:


Your credit…

A – has taken some hits, but you’re on the path to recovery. You’re pretty well paid up on your credit card debts, and spoken with a loan officer who estimates you can get your score above 640 within three years.
B – is deep in the hole. You have outstanding debts you are unable or unwilling to pay, pushing your score below subprime. Your loan officer estimates you may be able to get your score up above 600 in three years, but can’t be too sure.

If you answered A: Yes, Rent-to-Own is for you.
If you answered B: Sorry, Rent-to-Own is not your best bet. Continue renting and pay off your outstanding debts if possible, while taking all steps necessary to bump up your score.


Your debt-to-income (DTI) ratio…

A – is within or close to the boundaries set by mortgage lenders, thanks to effective debt management and a solid income.
B – is off the mark by quite a bit since your credit card payments make up a large percentage of your monthly expenses.

If you answered A: You’re on the way; Rent-to-Own is for you.
If you answered B: Pay down your debts first before considering a RTO agreement.


Your down payment…

A – is not enough. Your savings are too low to cover the ten to twenty percent needed for a traditional mortgage down payment. You do have several thousand dollars in the bank, however.
B – …what down payment? You’ve got, like, six bucks in your savings account. But you’re getting paid on Tuesday, so it’s cool.

If you answered A: Rent-to-Own can help you grow your down payment.
If you answered B: Rent-to-Own is probably not your best bet. While you can enter into some RTO agreements with no money down, it’s probably best that you don’t. Save up enough for an option fee and have a little cushion before reconsidering.


Your income…

A – is good and consistent. For all intents and purposes, you’re making more than enough to secure a mortgage, but because of deficient credit or savings you’re locked out of the market. However, you are making enough to pay down your debts and get your profile back on track.
B – is inconsistent. Sometimes you have it, sometimes you don’t. On occasion, you’re down to your last dollar to make your electric payments on time. You have a tendency to dip into your credit cards a little harder than you should when times are lean. Windfall is a fleeting friend, and you’re often back in the bucket quickly.

If you answered A: Rent-to-Own is pretty much designed for you. Sign up!
If you answered B: You are perilously close to derailing your credit recovery process, so perhaps RTO is not a great idea.


Your job situation…

A – is pretty stable. You’ve been in your field for a couple years now, and you’re starting to make waves. Your work is consistent, pays well, and shows no signs of drying up any time soon. You recently made a change from one company to another, and you’re being denied a loan despite the fact that you’re making MORE money now.
B – is unstable. You’ve been bouncing between different fields and jobs for a couple years now, trying to see what suits you best. You recently picked up a job that you dislike, but it pays you well. You’re certain you can stick with it, so long as there isn’t another major upheaval in the field.

If you answered A: Jump on board the RTO train, friend.
If you answered B: You may want to wait for a year or so before going RTO. Lenders will be looking for at least two years of stable employment in one field before extending a loan.


You’ve had a foreclosure…

A – four or five years ago during the economic downturn. You lost everything, but you’ve worked hard to rebuild your savings and start to turn your credit around. You’ve confirmed with a loan officer that there’s a very strong chance you’ll be able to secure a loan within three years.
B – recently. You left an underwater mortgage because the value of your home dropped so much it wasn’t worth it anymore. You’ve gone through the foreclosure proceedings on that home, but now want to take advantage of housing prices now that they’re less inflated.

If you answered A: You should consider Rent-to-Own.
If you answered B: Lenders usually require a minimum of three years out from your foreclosure, often more depending on your credit score and other factors. You may find it difficult to secure a loan at the end of your lease term, so Rent-to-Own is not for you.


You’re settling down…

A – very soon. Your wandering days seem to be over. You’re starting a family and looking to involve yourself in a community. You envision yourself spending at least seven to ten years in the next house you live in.
B – someday, maybe months or years from now. You’re never so sure where you want to settle down. This may be the place, it may not be. You just got a job in a new town, and you want to check out your options before you really settle into a home.

If you answered A: Rent-to-Own is a great option for you.
If you answered B: Rent-to-Own is also for you too. RTO offers you the opportunity to lease your home, and then pass on the purchase option at the end of the term if you don’t want it.


When you want to do something…

A – you finish it. You enjoy home projects, or at least dedicate yourself to getting them done if they need doing. You are fully dedicated to improving your credit score and getting your financial house in order so you can secure a loan.
B – you sometimes tend to waver in your decisions pretty quickly. You will change your mind, deciding to move here or there on a whim. You tend to get started on repair projects, then leave them half done for weeks at a time. You’ve also decided to fix your credit on a couple occasions, but easily get distracted by the need to make a big purchase.

If you answered A: You will perhaps enjoy the home maintenance element of Rent-to-Own. RTO is a solid choice for you.
If you answered B: You should probably work on that in general, but not with a Rent-to-Own.


The fine print in documents…

A – is something you pay attention to. You’ve done your homework, and you know your agreement up and down. You’ve negotiated with your seller to make sure all the terms work for both of you, and consulted with a real estate lawyer to confirm that everything is on the up and up.
B – is something you usually skip over. You trust the guy who wrote up the lease agreement, and you’re trying to do this quickly and cheaply. Consulting with a lawyer seems like a hassle and expense you’re not looking to undertake. You’ll just wing it, it’s fine.

If you answered A: Sign that lease, you’re now a Rent-to-Owner.
If you answered B: How are you alive? No RTO for you.


How did you stack up? While some of these scenarios may be a bit exaggerated, they give important insight into the type of person who succeeds with Rent-to-Own (and who does not). RTO is a lot of responsibility, and knowing that you’re the right person for the job is among the most important parts of starting an agreement.