How to Rent-to-Own a Home With Bad Credit

Are you worried that your credit score might hold you back from owning a home? You’re not alone. Most renters, about 86%, hope to buy a home someday, but many are priced out. Of those who feel homeownership is out of reach, more than half (54%) doubt they’ll ever get there. Many of these renters are looking for alternate paths to homeownership, with some exploring the option of rent-to-own with bad credit.

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.

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. In this guide, we’ll help you understand how to navigate the rent-to-own process with bad credit and explore your options to transition from renting to owning.

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?

Yes, it’s possible to rent-to-own even with low credit scores. Many rent-to-own programs make it easier for people with less-than-perfect credit to work their way toward homeownership. 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: You must prove that you have a steady income to make regular payments.
  • Positive rental history: You need to show that you’re a reliable tenant.
  • Favorable, on-time payment history: You should have an excellent track record of paying your bills on time.
  • Financial plan: You must demonstrate 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.

Examples of 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

Dream America

Dream America targets individuals striving to transition from renting to owning. Its 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 or more from savings

Pathway Homes

Pathway Homes offers renters the option to own from over 300 newly built, strategically located homes. Along with professional property management, renters receive free homeownership training to help them transition from renting to owning. Its service offers renters a clear path to homeownership, equipping them with the tools they need, all at no extra cost.

  • Minimum credit score: Undisclosed
  • 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. Its rent-to-own arrangement sets 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 in forums and social media groups focused on real estate can also lead to private listings and firsthand experiences from current renters.

How to improve your credit during the lease term

Improving your credit while renting-to-own can set you up for success when it’s time to finally buy the home. The lease term is a great opportunity to build healthy financial habits and show lenders you’re ready.

Here are a few easy ways to give your credit score a boost:

  • Pay rent on time: Consistent, on-time payments show you’re reliable. Some rent-to-own programs even report your payments to credit bureaus, which can help boost your credit.
  • Use a secured credit card: These cards are easier to get with bad credit and help you build a positive payment history. Just be sure to pay the balance in full each month.
  • Keep credit card balances low: Try to use less than 30% of your available credit. This shows lenders you can manage credit responsibly.
  • Check your credit reports: Review them regularly for errors or suspicious activity. Dispute anything that looks off to keep your credit in good shape.

Alternatives to buying 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.
  • 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. You may also explore HUD programs in your state.
  • Co-signer: Having a family member or friend with strong credit co-sign your mortgage can improve your eligibility.
  • Higher down payment: Saving a larger down payment can make you more attractive to lenders, despite a low credit score.
  • Better 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 these real estate contracts.

Use HomeLight’s Agent Match tool to connect with top-rated professionals in your area. With the right agent by your side, you’ll not only find the right home but also move through the rent-to-own journey with confidence and clarity.

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