How to Rent-to-Own a Home With Bad Credit in 2025

Navigating the path to homeownership can be challenging, especially with bad credit (defined as a FICO score of 580 or lower.)[1] 

Fortunately, a lower credit score doesn't have to derail your dreams of owning a home. Rent-to-own homes, also known as lease-to-own or lease-option, offer a potential solution by allowing you to live in a home while improving your credit score as you prepare for a future purchase.

Some companies provide rent-to-own opportunities for individuals with credit scores lower than 580. These options allow you to move toward homeownership while actively working to improve your financial standing.

However, rent-to-own isn't the only route to homeownership. In most cases, sticking with a traditional rental and focusing on saving and boosting your credit could better prepare you for a conventional mortgage (and cost you much less in the long run). Conventional loans often require a credit score of at least 620, while an FHA loan may accept scores as low as 580.[2] The average FICO score in the U.S. is 717, which is considered good and may qualify you for a conventional mortgage with favorable terms.[3]

Looking for expert guidance? A local real estate agent from Clever Real Estate can help you navigate the home-buying process. Fill out this form to match with a real estate professional.

Introduction to rent-to-own

Rent-to-own is a solution that allows individuals to rent a home with the option to buy it later. This type of agreement can be particularly beneficial for those who are unable to secure a traditional mortgage due to bad credit or lack of savings for a down payment. Rent-to-own homes provide an opportunity for prospective buyers to live in a home while improving their credit score and saving for a down payment.

In a rent-to-own agreement, a portion of the monthly rent payment is typically set aside and credited towards the future purchase of the home. This arrangement allows renters to build equity over time, making it easier to transition to homeownership. Additionally, rent-to-own agreements often include an option fee, which is a non-refundable fee paid upfront to secure the option to purchase the home at a later date.

For individuals with bad credit, rent-to-own can be a viable path to homeownership. By making timely rent payments and demonstrating financial responsibility, renters can improve their credit score and increase their chances of qualifying for a mortgage in the future. This approach not only provides a place to live but also offers a structured plan to achieve the dream of owning a home.

How to qualify for rent-to-own with bad credit

While traditional home purchases often require high credit scores, rent-to-own programs can be more accommodating with credit requirements. However, credit score is just part of the approval process, and other factors are also considered.

For example, many rent-to-own agreements stipulate a minimum monthly income between $2,500 and $5,000 and a solid employment history of at least three months. Eligibility might be restricted if you have a history of delinquent rent, evictions, foreclosures, or bankruptcy filings.

"These criteria include having a steady income stream and a history of responsible payment on debts," says John McConnell, a nationally recognized Credit Expert and Specialist in Personal Finance.

Rent-to-own agreements offer a unique opportunity for buyers with poor credit to work toward homeownership without immediately qualifying for a mortgage.

How rent-to-own works with bad credit

Here’s how the process supports buyers with bad credit:

• Credit repair opportunity: Making on-time rent payments and avoiding late fees helps build a positive payment history, which can improve your credit score over time.
• Built-in savings plan: Part of your rent or upfront option fee may be applied to the home’s purchase price, helping you build equity while you rent.
• Delayed mortgage application: Rent-to-own gives you time — often 1–3 years — to strengthen your credit, reduce debt, and save for a down payment before applying for a loan.

However, it’s critical to verify that the agreement reports payment history to credit bureaus. If it doesn’t, you may not see improvements reflected in your credit score.

Rent-to-own programs for people with bad credit

Here's a breakdown of some popular rent-to-own programs and their credit score requirements.

Dream America has one of the lowest credit score thresholds for rent-to-own homes with a minimum FICO of 500. It also allows a generous debt-to-income ratio of up to 50%. In comparison, most mortgage lenders typically ask for less than 36%. However, remember that you'll also need a household pre-tax income of $4,000 per month, and at least $8,000 in liquid savings to qualify.[5]

Divvy Homes offers rent-to-own programs with relatively lenient qualifications: a minimum FICO score of 550 and a monthly household income of at least $2,500. Additionally, an upfront payment of 1–2% of the home's value is required, contributing to savings for a future down payment.[6] 

Home Partners of America sets its minimum FICO score requirement between 580 and 620, varying by market and agreement type. However, it's important to note that according to a Moody's report, only approximately 25% of customers with a credit score of 620 or lower successfully transition from renting to owning.[7] A minimum annual household income of $40,000 is also required to qualify.[8]

Payment structure and costs

Rent-to-own agreements typically include:

• Option fee: A non-refundable upfront fee, often 1–5% of the home’s value, which may count toward the purchase price.
• Above-market rent: You may pay more monthly than for a traditional lease — often because a portion is credited toward your future down payment.
• Purchase price: Some contracts lock in a purchase price upfront; others let you buy at future market value — know which applies before signing.
• Maintenance responsibilities: In many rent-to-own deals, tenants take on repairs and maintenance, unlike standard rentals.

Important: If you don’t buy the home at the end of the lease, you likely forfeit the option fee and rent credits.

Pros and cons of rent-to-own with bad credit

Alternatives for home buying with bad credit

Buy a house with an FHA or VA loan

If you're facing challenges with credit, consider these alternatives:

1. FHA loans. These loans are accessible with a credit score as low as 500, with a 10% down payment. However, if your credit score is at least 580, you might qualify for a lower down payment of 3.5%, though requirements can vary by lender.
2. VA loans. Offered through the Department of Veterans Affairs, VA loans don't stipulate a minimum credit score, but individual VA lenders may set their own criteria.

To find the best option, shop at different lenders to compare credit score qualifications and other eligibility requirements.

Contact a housing assistance program

Many states and municipalities provide programs tailored specifically for first-time homebuyers, offering financial support such as down payment assistance and low-interest loans.

The Department of Housing and Urban Development (HUD) also has a range of homeownership assistance programs, including the Good Neighbor Next Door program, which offers a 50% discount to law enforcement officers, teachers, and firefighters.

Additionally, many local or community-based organizations offer help to prospective homebuyers. Check your local government's website and search for housing assistance or grants to explore what's available in your area.

» FIND: Homeownership assistance programs by state (HUD)

Work on improving your credit

Review your credit report for errors and inaccuracies that may affect your score. Request a free credit report from AnnualCreditReport.com, where you can get a copy of your report from the three credit bureaus (Experian, TransUnion, and Equifax).

According to the FTC, everyone in the U.S. can access six free credit reports annually from Equifax through 2026 by visiting AnnualCreditReport.com. This is in addition to the annual free report from Equifax, Experian, and TransUnion, which is available through the same website.

Make sure your report is accurate and complete. Common credit report errors to look for include incorrect names, addresses, or accounts that have been closed but listed as open or misreported as late or delinquent.[9]

"It’s important to review your credit report regularly and dispute any inaccuracies that may be present," says McConnell. 

Before you sign a rent-to-own agreement

Rent-to-own can be a great stepping stone to ownership, but it requires careful planning and due diligence — especially for buyers with bad credit.

Use this checklist to protect yourself:

• Review the full contract, including rent amount, purchase price, length of agreement, and what happens if you don’t buy.
• Verify payment reporting: Ask whether your rent payments will be reported to credit bureaus.
• Confirm eligibility for a mortgage: Make sure you’ll be able to qualify at the end — or work with a lender to create a path to qualification.
• Inspect the home: Get a professional inspection before moving in so you know what you’re responsible for.
• Work with a pro: Consult a real estate agent, housing counselor, or attorney familiar with rent-to-own agreements.

Watch out for scams

Scammers often target buyers with bad credit by advertising fake rent-to-own listings or predatory agreements. Red flags include:

• Unlicensed landlords or companies
• Vague or missing contract terms
• Upfront fees without written agreements
• Pressure to sign quickly

Protect yourself by researching the seller or rent-to-own company, asking for references, and consulting a housing attorney before signing anything.

The bottom line

Boosting your credit score is crucial for securing lower interest rates and reducing overall costs. For those with less-than-ideal credit, rent-to-own homes offer a unique opportunity to live in a potential future home while saving for a down payment and improving your finances.

Before entering into a rent-to-own contract, thoroughly explore your options and seek advice from financial experts, like local real estate agents experienced in these arrangements. Their guidance will help you navigate the process effectively and avoid common pitfalls, ensuring a smoother path to homeownership.

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