Rent-to-own allows you to live in a townhouse while saving for your down payment and boosting your finances to qualify for a future mortgage. However, rent-to-own agreements can also be more costly than traditional rentals, while others are outright scams. And townhouses bring their own complications, since they can be subject to homeowners associations, additional housing zoning regulations, and estate laws.
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How to compare rent-to-own townhouses
Before deciding on a rent-to-own townhouse, consider these factors:
Lease terms
Your lease specifies everything from basics like your monthly rent and future purchase price, to who’s responsible for covering maintenance, repairs, and property taxes during the lease period.
Make a more informed decision by understanding your finances, the state of your local real estate market, and the pros and cons of each property.
Rental period
The rental period is usually one to five years. Choose a longer period if you need more time to save for your townhouse purchase and qualify for a mortgage, or a shorter one if you're ready to buy soon.
Purchase price
Compare the townhouse’s future purchase price to that of similar properties in your area. Calculate how much you’ll pay throughout the rental period and what percent of that money goes toward the eventual purchase price.
Make sure to shop around!
Both the price of your desired home and the portion of your rent contributed toward its future down payment will vary by rent-to-own company and market. For example, for a $160,000 rent-to-own townhouse in Atlanta, GA:
Dream America may charge you rent of $1,670, with 10% of that ($167/month) being saved for buying the house
Landis may charge rent of $1,749, with 17.5% saved ($307/month)
Homeowners association fees and rules
Research the townhouse's HOA fees and who is responsible for paying them during the rental period. Keep in mind that HOA fees can significantly increase the cost of your agreement (and HOA fees typically rise every year, too). Make sure you're comfortable with its regulations, which may include pet restrictions and limitations on making changes to the home.
» MORE: Rent-to-Own Contracts: What You Need to Know
How to find rent-to-own townhouses
Search townhouse listings online
In addition to working with a realtor or going through rent-to-own companies, you can find townhouse options on popular real estate websites like Realtor.com or Zillow, Craigslist, or relevant Facebook groups.
Some online listings are scams!
Legitimate ads post a phone number or a link to a reputable website for more information about the property and its qualification requirements. Avoid listings that require a large up-front deposit before signing a contract or that refuse to allow an in-person viewing, as these red flags could be signs of a scam.
» LEARN: 5 Signs of a Rent-to-Own Scam (and How to Avoid One)
Look into rent-to-own companies
Typically, a rent-to-own company will buy a home for you and become your landlord, and then a portion of your rent goes toward buying it back. However, only a few rent-to-own home companies allow townhouses as a housing option because they don't want to be liable for the additional restrictions that come with owning a townhouse.
Dream America and Landis both allow fee-simple townhouses, which means the properties need to be owned outright. Dream America requires cash savings of $5,000 and at least a one-year history of on-time rent payments. The company also allows half of your income to go toward housing, whereas most lenders allow only 36–43%. Meanwhile, Landis requires you to have had no foreclosures or bankruptcies within the past year.
👀 At-a-glance | Dream America | Landis |
|---|---|---|
Min. FICO score | 500 | 550ⓘ |
Min. pre-tax income | $4,000/month | $5,000/month |
Appraised home value | $150,000–400,000 | $110,000–500,000 |
Up-front payment | 1% | 2% |
Lease length | 12 months | Up to 24 months |
Available markets | FL, GA, TX | AL, FL, GA, IN, KY, MD, NC, OH, PA, SC, TN, WV |
Hire a realtor
A real estate agent who has direct experience in the rent-to-own market and with townhouse properties can give you a few advantages:
Finding and comparing different types of rent-to-own agreements
Negotiating pricing and terms with individual landlords
Navigating (HOA) agreements, which are common among townhouses and can be especially confusing for first-time buyers
Not all agents are familiar with these markets, so make sure you find a realtor who's right for you.