Rent-to-own homes often promise a clear path to homeownership for those currently shut out of the market due to credit issues or low income. While these programs can be expensive, they're also unregulated compared to traditional rentals and purchases, and some may even be outright scams.
🔒 Protect yourself from scams
Here are some key tips to protect yourself from the most common rent-to-own scams.
- Never take shortcuts. Don't pay any money before signing a contract or skip inspections.
- Research thorougly. Verify the legitimacy of the company or landlord by checking online reviews and researching property tax records.
- Watch for red flags. Be cautious if the landlord is reluctant to allow due diligence, and if the home is mispriced compared to similar, nearby homes.
- Get professional help. Have a real estate attorney and an experienced realtor review the agreement, as there is no standard rent-to-own contract.
Connect with Clever Real Estate today to get personalized guidance on rent-to-own properties in your market. Our experienced buyer’s agents specialize in helping you navigate the complexities of rent-to-own agreements, ensuring you find the best options that fit your needs and protect your interests.
5 signs of a rent-to-own scam
🚩 1. 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.
🚩 2. 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.
In some cases, properties are intentionally mispriced to distract buyers from hidden issues, such as structural problems, unpaid taxes, or legal disputes.
🌟 What you can do
Your best defense against this type of exploitation is knowing the market. Look into how comparable properties are listed and priced in the area. Always request a detailed property history and current market analysis to understand the true value.
Better yet, work with a local realtor, who can give you unmatched insight. Clever can help you find and compare local buyer agents who specialize in rent-to-own, so you can compare and choose the best fit for your unique needs.
Connect with top local agents who can help you get a great deal on a new home. Eligible buyers also earn cash back after closing.
🚩 3. The home is marketed as move-in ready — but is in bad shape
Sometimes, scammers misrepresent a home's condition when listing it. Other times, they promise to address issues before you move in but never follow through. This malpractice has significantly contributed to rent-to-own's bad reputation.
Some lease-to-purchase companies sell homes in disrepair or with housing code violations, such as elevated lead levels, unpaid taxes, or other fees. There have even been reports of homes sold that were condemned and slated for demolition, without adequately disclosing these conditions to consumers.[1]
Homes with asbestos, bad plumbing, mold, or other serious problems can be difficult to sell. Unscrupulous homeowners might list these properties as rent-to-own to attract buyers who may 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. Some lease-to-purchase arrangements don't allow customers to conduct an independent home inspection or appraisal to verify that the home is in good condition and that the purchase price is fair.[1] Walk away from these types of arrangements.
Not only will a licensed inspector or contractor give you an honest assessment of whether the home is up to code, but they could also uncover problems you may not be aware of. If the homeowner objects, you’ll know you’re dealing with something shady.
🚩 4. The landlord accepts poor credit or doesn’t run a credit check
Rent-to-own providers are generally more flexible about 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 very low credit score (550 FICO or lower) or doesn’t conduct a credit check at all, it could be a red flag indicating they might try to charge illicit upfront fees. Most major rent-to-own companies require a minimum FICO score of 550, but they usually prefer scores above 600 and typically require an upfront payment of 2-5% of the home's estimated value.[2]
🌟 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.
🚩 5. The rent-to-own contract is actually a contract for deed
A contract for deed, also known as seller financing, is an arrangement where the buyer moves into the property and starts making payments directly to the seller, who retains the title until the contract is fully paid off. This method bypasses traditional lenders, meaning monthly payments, the down payment, and interest go directly to the homeowner.
Historically, contracts for deed were common in Chicago’s black communities due to redlining, which restricted access to traditional mortgages. While these contracts allowed homebuyers to acquire properties without traditional credit, they offered no protections or opportunities to build equity, leaving buyers vulnerable to losing their homes after missing just one payment.[3]
Contracts for deed lack the security of traditional bank financing. Because the buyer doesn't own the home until fully paid, the seller retains all equity and can evict the buyer at any time. These agreements have a long history of abuse, particularly in exploiting low-income and Black families after World War II.[4]
🌟 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. A professional can ensure the terms are clear and fair, protecting you from potential pitfalls.
Suspect a scam? Get advice from a pro
If you encounter suspicious behavior from rent-to-own landlords, report it to local authorities and file a fraud report with the FTC.
Rely heavily on a real estate lawyer or realtor, especially during negotiations. They can understand the contract's fine print and help identify potential risks or scams. Their expertise is invaluable for navigating the complexities of rent-to-own agreements and protecting your interests.
