3 Reasons a Rent-to-Buy Program Is a Bad Idea

Using a rent-to-buy program is very popular with consumers that do not have good credit. However, when you look at the details surrounding the transaction, it is not always as good as it seems. Here are a few reasons to stay away from rent-to-buy programs.

1. High Interest Rates

When you undergo a rent-to-buy program, the effective interest rate that you pay is usually excessive. If you pay more in interest than you should, you are basically throwing your money away. There is not much upside to owning a home if you have to pay double for it over the first few years. Most people will give up before they realize their goal and spend much more money than they should have.

2. Questionable Approval

Most rent-to-buy agreements hinge on a loan approval. If you have bad credit, you might sign up with a rent-to-buy program and rent the house for the first few years. The payment will usually be larger than if you were simply renting the home. Then at the end of the two years, you have to get approved for the loan. If your credit is still not good enough to get approved, you will be back in the same situation you were in before the agreement took place. You can most likely renew your contract again and pay for another year or two in hopes that your credit will improve enough during that time period. However, you are basing a large financial decision on whether or not your credit will improve over the span of a few years.

3. Owner Backs Out

A lot of your success depends upon the integrity of the owner of the property. If you are working with an individual who owns the property, you are basically at their mercy. There have been many stories of unscrupulous homeowners taking the money that they are given by you and using it for something else entirely. Instead of paying off the mortgage on your property, they may be using that money to pay their own mortgage. Then after a few months of doing this, you get a notice in the mail that says the house you are living in is about to be foreclosed upon. While it won't hurt your credit, it will cost you a lot of money and wasted time in the process. You will never see the money that you have been paying in all of these months or years. This is a lot of faith to put into someone else when it deals with your financial future and well-being. If you are dealing with a major company that handles these programs, you might be a little better off, but the company can fail as well.