RentToOwn-HouseFinder.com - What does rent to own mean when looking for a new house?

What does rent to own mean when looking for a new house?

I am looking for a house to rent. But I have heard people ask about rent to own, and I am just wondering what this means.

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Rent to own (RTO) is a means of acquiring ownership over time without taking on debt. RTO companies rent items, most typically furniture, appliances and electronics, with the condition that the item will be owned by the renter if the term of rent is completed. Since rent to own stores do not require a credit check or down payment, they are popular with sub-prime-credit consumers; those with damaged or no credit history. RTO is also popular with corporate travelers on temporary assignment as there is no long term commitment involved; An item can be rented and returned at any time without penalty.
Technically a portion of your rent , for a specific period of time, goes toward the down payment. Be sure to have a lawyer read the paperwork, you can get sc*&^%d really bad with these deals.
Each deal will have its own terms. In general, it means that a portion of your rent will be treated by the seller as a deposit towards your down-payment. For example: If 100% of the rent can be treated as a deposit, and you rent for $2000/month for 6 months.... this means that either the seller will discount the house for you $12,000 dollars or that upon escrow collections he will deposit your $12,000 in rent into escrow just prior to escrow close. It's just an example. Your terms may vary. To enter into such an agreement, the house price is set at the start of the rent. If not, then it makes no sense to rent to own. The sellers risk is that if the house market moves up, then they can't adjust the price up upon a sale to you. However, your risk is that if the house market declines, then you could end up buying the house for more than it's worth. Your risk is reduced though because an appraiser won't sign off on the value if the market declines too much. Don't forget, you have an additional cost of multiple moves (i.e. moving isn't free).
Every rent-to-own deal is completely unique. Usually it means that there is something wrong with the house so the owner can't sell it, generally because the house falls into a category that no bank will issue a mortgage on the home. Usually that happens if the home is not insurable (for example, built on stilts on a hillside or in an erosion or avalanche zone, flood plain, etc) If you cannot finance the home that means you can only purchase it if you have the entire purchase price cash-on-hand. 99.99% of people do not fall into that category. The only other way to acquire the home is "rent to own". This means the owner knows he is screwed owning a home that nobody can buy and has to find some other way to unload it. There is no "standard" rent-to-own contract. It could mean that if you agree to pay them X amount of rent for X amount of years they will give you the deed to the house. Sometimes that is also called "owner financing". The kicker is if you decide you don't want to or can't live in the house and leave, all you did is pay rent. Unlike traditional home ownership where you can leave and keep the equity, with rent-to-own you get NOTHING.