Rent-to-own homes often promise a clear path to homeownership for those shut out from buying right now because of credit issues or low income. While these programs can be expensive, they’re also unregulated compared with traditional rentals and purchases — and some may even be outright scams.
Protect yourself from scams
Never take shortcuts, like paying before signing or skipping inspections. Research the company or landlord to verify the homeowner. Review the agreement with an attorney, since there's no standard rent-to-own contract. Consider a landlord’s reluctance to any due diligence a big red flag.
5 signs of a rent-to-own scam
🚩 The landlord requests money before signing
Scammers may ask for a nonrefundable deposit before you sign a contract or move into the property. This is an easy scam because most rent-to-own arrangements require an up-front payment. However, legitimate landlords should not ask for money without an agreement in place.
🌟 What you can do
Make sure the company or landlord requesting the money actually owns the home (yes, really). The Federal Trade Commission warns that scammers may sometimes list a home online that they don’t own to try to collect up-front fees.
You can verify the real homeownership by researching the property’s tax records, which should list the owner's name. If you’re interacting with a company, check online reviews and call to speak with a representative.
🚩 The property is way overpriced (or underpriced)
Overpricing a listing could help a landlord or scammer justify a larger down payment or higher rent.
However, underpricing a home could be used to lure you in. The deal could seem too good to be true and may tempt you to jump at the opportunity by paying up-front fees quickly.
🌟 What you can do
Your best defense against this type of exploitation is by knowing the market. Look into how comparable properties are listed. Better yet, work with a local realtor, who can give you unmatched insight.
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🚩 The home is marketed as move-in ready — but is in bad shape
Sometimes, the scammer will misrepresent the home’s condition when they list it. Other times, they promise to address these concerns before you move in but never do. Unfortunately, this kind of malpractice has contributed heavily to rent-to-own’s bad reputation.
A home with asbestos, bad plumbing, mold, or other problems can be hard to sell. Sketchy homeowners might try to offload the property by listing it as rent-to-own because they may attract people who overlook these issues.
🌟 What you can do
Read your state's landlord–tenant laws. Local laws should outline what landlords in your state are legally required to repair. For example, most states require rentals to be in safe and habitable condition, which means that all major systems (roof, electrical, plumbing, HVAC, etc.) are in working order.
Get a home inspection before signing. Not only will a licensed inspector or contractor give you an honest take on whether the home is up to code, but they could also uncover problems you may not be aware of. And if the homeowner objects, you’ll know you’re dealing with something shady.
🚩 The landlord accepts poor credit or doesn’t run a credit check
Rent-to-own providers are usually more flexible on the buyer’s credit score than typical sellers. Ideally, the buyer will improve their credit during the rental term to eventually qualify for a mortgage.
However, if the landlord accepts a low credit score (550 FICO or lower) or doesn’t even conduct a credit check, this could be a warning sign that they might try to charge you illicit up-front fees.
🌟 What you can do
If you have poor credit, be careful or skeptical of any company that’s willing to take you on as a customer, says Michelle Boyd, a housing policy expert.
"Unless the rent-to-own program is driven by a local nonprofit or counselor, it’s hard for consumers to succeed if they enter the agreement with a really low credit score," Boyd says.
🚩 The rent-to-own contract is actually a contract for deed
A contract for deed, also called seller financing, is an arrangement where the buyer moves into the property and begins making payments, but the seller retains the title to the property. A contract for deed cuts out the traditional lender: monthly payments, the down payment, and interest are all paid directly TO the homeowner.
However, contract-for-deed agreements lack the security of borrowing from a bank. Since you don’t own the home until you have fully paid for it, the seller retains all of the home’s equity and can evict you at any time.
Contract for deed arrangements have a long history of abuse, particularly in stealing wealth from low-income and Black families after World War II.
🌟 What you can do
If possible, have a realtor or attorney review the agreement to make sure it is NOT a contract for deed being misrepresented as rent-to-own.
Suspect a scam? Get advice from a pro
If you encounter suspicious behavior when interacting with rent-to-own landlords, you can report it to the local authorities and file a fraud report with the FTC.
You should lean heavily on a real estate lawyer or realtor, especially during negotiations with landlords. Not only can they better understand the contract's fine print, but they can also help you recognize signs of risk or scams.
