Why Dave Ramsey Says You Should Avoid Rent-to-Own Homes 'At All Cost'

Would you end up regretting a rent-to-own arrangement?

Most people who buy a home get a mortgage, purchase it, and then move in. But there's another option too, called rent-to-own. 

With this kind of arrangement, you lease a property with the option (or requirement) to buy it after a certain number of years. Your rent payments are higher than they'd be if it wasn't a rent-to-own and the extra money goes into purchasing the property. 

You eventually can (hopefully) get a mortgage, using the equity you've acquired in the home with your rental payments as part or all of your down payment.

Although this could sound like a good deal if you're worried you're wasting money on rent, Dave Ramsey isn't a fan of rent-to-own properties. In fact, that's putting it mildly as the finance guru actually said this kind of arrangement should be avoided "at all cost."

Here's why Ramsey doesn't like rent-to-own arrangements

Ramsey has a few simple reasons for disliking rent-to-own arrangements. Namely, he believes they are complicated, risky, and favor the seller rather than the buyer. 

Ramsey's first major objection to renting-to-own is that there can be a lot of fine print in contracts and it's sometimes difficult to get the terms right. For example, Ramsey points out that renters often end up responsible for maintenance costs during the time they're leasing the property -- and they don't get this money back if they decide not to buy. And that's just one of many contract terms that buyers may not be aware of.

"Before signing a contract, make sure the terms are right. Read the fine print too. It's a good idea to have an attorney or a real estate pro look at the contract," he advised. 

Another objection he has is that buyers take on a huge risk. If they can't get a mortgage to buy the property when the time comes, or if they decide they have changed their mind, they're out all of the money they spent. This includes the maintenance costs mentioned above, but also upfront fees and the higher rent payments that rent-to-own contracts typically require. And even if they do follow through with the purchase, they risk paying more than the home is worth since the contract is often written to require them to pay an inflated price. 

Finally, his last issue is that sellers benefit more than buyers do. "With rent-to-own homes, the seller has most of the power," Ramsey explained. “They make money either way -- either by renting out or selling the house -- and they know most people who go for lease-to-own deals are in a tight spot financially. So they give themselves lots of ways out of the deal."

Ramsey warned that if you miss even one payment or fail to make timely repairs, you could end up losing the chance to buy a home -- and all the money you've already spent trying to do that. 

Should you listen to Ramsey and avoid rent-to-own? 

Ramsey is absolutely right that rent-to-own arrangements are usually best avoided. You're typically far better off just renting (and paying a lower rate), while saving money and improving your finances so you can buy a house the conventional way.

Of course, not everyone feels like they can do that. If you really want to become a homeowner and you think rent-to-own is the only way you're going to save up a down payment, then you may decide moving forward with this option is best. Just be sure you go in with both eyes open and get a lawyer to help ensure your interests are protected throughout the process.