How to Rent-to-Own a Home With Bad Credit
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Richard Haddad Managing EditorRichard Haddad is the managing editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Are you worried that your credit score might hold you back from owning a home? You’re not alone. More than 70% of renters in the U.S. report wanting to own a home, but only 45% say they can qualify to buy a house where they live.
Many of these renters, like you, are looking for alternate paths to homeownership, even with less-than-ideal credit. A rent-to-own agreement could be your gateway to buying a home, allowing you to rent now and purchase later, often regardless of a low credit score.
This guide will help you understand how to navigate the rent-to-own process with bad credit and explore your options to transition from renting to owning.
Step one: Talk to an expert
Connect with a top-rated local real estate agent who can help you navigate rent-to-own options near you.
What credit scores are required to buy a house?
When you’re considering buying a home, your credit score is a key factor lenders look at. Here’s what you typically need for various loan types:
- FHA loans: Minimum credit score of 580 for 3.5% down payment; 500-579 for 10% down.
- VA loans: No set credit score requirement, but lenders typically prefer 620+.
- USDA loans: Generally require a score of 640 or higher for streamlined processing.
- Conventional loans: Often require a minimum of 620, with better rates for scores above 720.
- Other options: Look into first-time homebuyer programs, closing cost and down payment assistance, and state homebuyer assistance options, which may have flexible credit requirements.
Can I rent-to-own a home with bad credit?
Rent-to-own programs can be a beacon of hope for those with less-than-perfect credit. To qualify, here’s what most rent-to-own sellers or companies look for:
- Money for a down payment or option fee: This is an upfront commitment that typically goes toward your future home purchase.
- Acceptable income and employment history: Proof that you have a steady income to make regular payments.
- Positive rental history: Indications that you are a reliable tenant.
- Favorable on-time payment history: A track record of paying your bills on time.
- People with a financial plan: Demonstrating that you’re working toward improving your financial situation.
How does rent-to-own work with bad credit?
The basic process of a rent-to-own agreement involves renting the property for a set period, during which you have the option to buy it before the lease expires. This arrangement often allows you to lock in a purchase price at the start, potentially benefiting from price appreciation over time.
Meanwhile, a portion of your rent payments typically contributes toward the purchase price, helping you build equity gradually. This setup can be particularly advantageous if you need time to improve your credit before securing a mortgage.
Rent-to-own programs for buyers with bad credit
Rent-to-own programs can offer a practical solution for those with bad credit to start their homeownership journey. Here’s an overview of some popular rent-to-own companies that cater to buyers with less-than-perfect credit scores.
Divvy Homes
Divvy Homes provides an accessible pathway to homeownership. By renting your future home while you save, you can build equity gradually, with a portion of your rent going toward the eventual purchase.
- Minimum credit score: 550
- Deposit or upfront money required: 1%–2% of the home’s purchase price
ZeroDown
ZeroDown allows you to move into your dream home without a down payment. Instead, an upfront program fee is paid to facilitate the lease-to-own process, offering a unique approach to buying a home with time to improve your credit.
- Minimum credit score: 620
- Deposit or upfront money required: $10,000 program fee
Dream America
Dream America targets individuals striving to convert from renting to owning. Their flexible requirements make it easier for those with lower credit scores to enter a rent-to-own agreement.
- Minimum credit score: 500
- Deposit or upfront money required: $8,000 (can vary with home price)
Home Partners of America
Home Partners of America provides a rent-to-own program that focuses on choice and flexibility, allowing potential buyers to choose from a wide array of available homes under a right-to-purchase agreement.
- Minimum credit score: 580
- Deposit or upfront money required: $75 application fee
Trio
Trio offers a lease-to-own program that emphasizes financial inclusivity, providing options for those who may not initially qualify for conventional financing due to credit constraints.
- Minimum credit score: 580
- Deposit or upfront money required: Down payments are only required for high-balance financings above $726,300
Landis
Landis focuses on turning renters into homeowners by offering tailored coaching to improve financial literacy, alongside their rent-to-own arrangement, setting a clear path toward buying a home
- Minimum credit score: 550
- Deposit or upfront money required: 2%–3% of the home’s purchase price.
How do I find rent-to-own homes?
Finding a rent-to-own home requires a bit of research and strategy. You might start by reaching out to a top real estate agent who has connections in the market where you want to buy. You can also search through online services that specifically cater to rent-to-own buyers, such as the companies listed above, or other platforms like Rent To Own Labs, Hidden Listings, and HomeFinder.
Additionally, engaging with forums and social media groups focused on real estate can also lead to private listings and firsthand experiences from current renters.
Alternatives to buy a home with bad credit
If rent-to-own isn’t the right fit, consider these alternatives to achieve homeownership with a less-than-perfect credit score:
- FHA loans: These government-backed loans allow lower credit scores and down payments as low as 3.5%.
- VA loans: For veterans and active military members, VA loans offer zero down payment options without a minimum credit score requirement.
- Apply for government assistance: There are numerous federal, state, and local assistance programs designed to help first-time and low-income buyers with everything from down payments to low-interest loans. Explore HUD programs in your state at this link.
- Co-signer: Having a family member or friend with strong credit co-sign your mortgage can improve your eligibility.
- Increase your down payment: Saving a larger down payment can make you more attractive to lenders, despite a low credit score.
- Improve your credit: Take time to repair your credit by paying down debts and ensuring your bills are paid on time.
Find an agent who is familiar with rent-to-own homes
As you chart a course to homeownership on this rental road less traveled, finding the right real estate agent can light the way. Look for agents who specialize in or have substantial experience with rent-to-own properties. They can guide you through the complexities of rent-to-own contracts.
HomeLight can connect you to top-rated agents who can help you find a suitable home and navigate the rent-to-own process effectively.
Header Image Source: (WikimediaImages/ Pixabay)
- "How To Fix Your Credit In 7 Easy Steps", Forbes (February 2024)
- "VA Loan Credit Score Requirements", VALoans.com (August 2023)
- "USDA Loan Income and Credit Eligibility", USDALoans.com (August 2022)
- "69+ Homeowners vs. Renters Statistics: How Many Americans Rent?", Worth Insurance Services (October 2023)
