Homeownership – 11 min read

Rent-to-Own in Texas: Everything You Need to Know

Find out how this alternative path to homeownership stacks up against more traditional options, and learn how you can take advantage of it.

Homeownership – 11 min read

So, you're dreaming of becoming a homeowner but your credit is not as good as it could be or you’re struggling with getting a mortgage pre-approval? No worries, there's a friendly alternative called "rent-to-own." It's like a trial period for your dream home.

Here's how it works. You rent a place for a set period, and during that period, you can decide if you want to buy it before the lease is up.

Rent-to-own is not quite as simple as your run-of-the-mill renting situation. There are two parts to this deal: a regular lease agreement (the usual rental stuff) and an option to buy. The second option is more complicated, so you've got to be a little cautious and make sure it's a fit for you.

In this article, we’ll unpack rent-to-own and share everything you need to know to make a decision you won’t later regret.

Understanding rent-to-own in Texas

Rent-to-own is a way you can go from renting to buying a house, but it isn’t as simple as it sounds. Read on.

What is rent-to-own?

Rent-to-own (also known as a lease-option contract) is an arrangement in which you have either an opportunity or an obligation to buy the house you’re renting when the lease is over. However, in some contracts, you might find that you're expected to buy the house before your lease is up. 

In a standard apartment lease, your cash goes straight into the roof over your head and pays off your landlord’s mortgage. However, in rent-to-own a part of your rent goes towards building your own equity. It's like having a foot in renting and owning, giving you a chance to ease into homeownership when you're not quite ready to take the big plunge. 

Lease purchase or lease option agreement: Which rent-to-own option is better for you?

Thinking about a lease option or lease purchase? Here's the scoop: 

With a lease option, you have the choice to buy the property at the end of the lease by paying what’s called an 'option fee.' But, if you change your mind, you might lose that fee and any invested down payment or equity. 

On the other hand, a lease purchase means you're committed to buying the property at the end of the lease. Be warned though—if you can't secure a mortgage, or if you decide against buying, there could be legal consequences. So, choose wisely and know where you’re likely to stand when decision time comes around.

How do rent-to-own homes work?

Here's a breakdown of the key aspects:

• Contract duration: The length of time you’ll be renting before you’re ready to buy. The duration is decided by the homeowner and renter, and usually spans from one to five years.

• Payment breakdown: Rent-to-own payments include the option fee, monthly rent (with a portion contributing to the home purchase), and the agreed-upon home purchase price. Understanding these components is crucial for budgeting and eventual homeownership.(Keep in mind that you won’t have access to this money once you pay it. It can only be used for the down payment when buying the house. However, you might get it back if you decide not to buy—depending on the contract.)

• Option to purchase: At the end of the lease, the renter can decide whether to buy the home or not—unless the contract requires the renter to purchase

• Exiting the contract: Depending on the agreement, renters may have the choice to purchase or walk away. Backing out prematurely may incur legal and financial consequences.

• Landlord responsibilities: Landlords (in this case the rent-to-own companies) are bound by the contract, with specific stipulations on potential contract termination reasons

• Upfront costs: Rent-to-own typically involves an upfront nonrefundable option fee (1-5% of the purchase price), acting as a down payment and securing the right to buy

• Financial responsibilities: Until purchase, the landlord covers property taxes, Homeowners Association fees (HOA), and homeowner's insurance, with these costs often reflected in the monthly rent

Who is rent-to-own for?

Rent-to-own is a way to ease into the home-buying journey. It’s a fit for people who who struggle to secure a mortgage in Texas

The rent-to-own modality gives these people some time to improve their credit score or simply to fatten those piggy banks so they can then buy their dream home. 

Here’s a breakdown of who rent-to-own is good for and not-so-good for:

Who is a good fit for rent-to-own:

• Limited credit history or those with credit issues: those with limited credit history may find rent-to-own a viable option as it provides time to build credit before committing to a mortgage. For others actively working on improving their credit score, the rent-to-own option can be a stepping stone toward traditional mortgage eligibility.

• Uncertain long-term plans: if you’re unsure about settling in a specific location rent-to-own may give you the flexibility you’re looking for before committing to permanent homeownership (if it’s a contract where you have the option and not the obligation to buy)

• Insufficient down payment: Those lacking a substantial down payment for a home purchase can benefit from the gradual accumulation of funds through rent-to-own

Is down payment the barrier you’re facing to homeownership? We can help! With Dwelling, you’ll get matched with up to $30,000 in down payment assistance from federal, state, and non-profit assistance programs—no strings attached.

Who may not be a good fit for rent-to-own:

• Immediate purchase readiness: Those who are ready for an immediate home purchase may find traditional mortgage options more straightforward and cost-effective

• Financial stability: If financial stability is already established, and a substantial down payment is readily available, the direct purchase of a home might make more sense

• Unwilling to assume additional costs: Those who are not comfortable with the potential added costs and intricacies of a rent-to-own arrangement are better off going through a standard home purchase

A variety of factors play into whether rent-to-own is a good option for your situation and goals. What’s important is that you really think about your finances, future plans, and the pros and cons of rent-to-own. 

The pros and cons of rent-to-own

Just like everything in life, there are pros and cons to rent-to-own agreements. Here’s an overview of them so you can make the best decision for you:

Rent–to–own can be a useful tool for some people, but renters must be careful, according to Craig Hunter, Founder & CEO of Dwelling:

“Every month, you pay rent, plus a premium (or "savings fee") that's tucked away to later apply to your future home purchase. Unfortunately, those premiums paid accrue interest to the Rent-to-Own company instead of you, meaning you could be losing out on up to $30,000 over three years.”

If you need help securing down payment assistance, or you need to improve your credit, you can always find the help you need at Dwelling. We have a FICO credit calculator, credit-building tools, and more. 

How to buy a rent-to-own home in 10 steps

If you’re wondering how the whole process works, from rent-to-own to actually owning, here’s the breakdown in ten steps.

1. Application and approval

Begin by applying for the rent-to-own program offered by the seller or a rent-to-own company. This may involve a pre-qualification process to assess your eligibility.

Complete any necessary applications. You’ll need to provide information about your income, credit history, and other relevant details. Wait for approval from the seller or rent-to-own company. 

2. Property search

Once you receive approval, you’ll look at the houses available for rent-to-own that the company offers. Consider your preferences, budget, and the terms of the rent-to-own agreement.

Wondering if it’s the right time for you to buy your dream home in Texas? Check our in-depth resource to make the right decision. 

3. Agree on terms

Review and negotiate the terms of the rent-to-own agreement. This includes aspects such as the monthly rent, the duration of the lease option, the purchase price, and any potential rent credits.

4. Option fee and lease signing

Pay the option fee, a non-refundable upfront payment that secures your right to purchase the property at the end of the lease option period.

Sign a lease agreement that outlines the terms of the rental period and the option to buy the property.

5. Rent payments and credits

Make monthly rent payments as specified in the lease agreement. In some rent-to-own arrangements, a portion of each rent payment may be credited toward the future purchase of the home—this could be as savings towards the purchasing price or as a down payment. 

6. Home inspection and repairs

Do a home inspection, identifying any necessary repairs or maintenance issues. The responsibility for repairs may vary depending on the terms of the agreement. Ensure you’re clear on who will be responsible for them! 

7. Exercise the option to buy

At the end of the lease option period (typically one to five years), you can purchase the property. Exercise this option if you are ready and willing to buy.

8. Secure financing

Obtain financing for the home purchase. This may involve securing a mortgage or arranging alternative financing, depending on the terms agreed upon in the rent-to-own agreement.

💰Looking to save on down payment? Dwelling can help! Just tell us your income and we’ll tell you how much down payment assistance we can secure for you. No strings attached. 

9. Closing the deal

Finalize the home purchase by closing the deal. This involves signing the necessary paperwork, transferring ownership, and completing any remaining financial transactions.

10. Move-in and ownership

Once the deal is closed, you officially become the owner of the property—time to celebrate with a good-ol’ Texas BBQ! Move into your new home and enjoy the benefits of homeownership.

It's important to note that the specific steps and details may vary depending on the terms of the rent-to-own agreement and area regulations. To avoid any future headaches, work closely with a real estate professional and seek legal advice to ensure a smooth process.

8 Rent-to-own programs in Texas

Just like BBQ joints, there are plenty of choices when it comes to rent-to-own programs in Texas. We’ve gathered the top companies offering rent-to-own homes in Texas, and to make things fair to you we’ve pointed out how they work, but also the reviews and problems you might encounter when using them: 

1. Divvy Homes

Although for some it’s a good way to move towards homeownership, there are some downsides. Here’s what you get when you use Divvy Homes:

• You make an initial payment of 1-2% of the purchase price

• The program aims to make you mortgage-ready within 3 years

• If you want to move out you need to give a 60-day notice

• If you back out of the deal you’ll be able to keep your savings minus the relisting fee and the interest rate that has gone to pay Divvy

• You have a minimal amount of houses you can rent to buy (for example, there are only 14 houses in Houston now)

• Although Divvy Homes has helped many achieve homeownership, it has also put others in financial jeopardy

2. Home Partners

Home Partners is another big company that offers rent-to-buy options. Here’s an overview of what they offer:

• You sign a 1-year lease and Right to Purchase agreement, with move-in usually 2 weeks after closing

• You have the option to buy at any time and the choice to walk away or renew at the end of each lease term (up to 3 years in Texas)

• If you exercise the Right to Purchase, there’ll be additional costs such as closing costs, transfer taxes, attorneys' fees, title insurance, and the cost of a mortgage loan

• The Purchase Price increases by 3.0%-5.5% (depending on the region) every year

• Some have reported that access to home inspection reports is restricted, and prompt eviction filings can occur for a single late payment

3. ZeroDown

ZeroDown is yet another popular option in the market. Here’s an overview of their rent-to-own arrangement:

• You start by making a 3% Starter Payment of which the 2% goes towards your down payment and the remaining 1% goes toward ZeroDown fees

• Each rent payment earns you Purchase Credits

• After 3 years, you can use these rent credits to buy the home

• If you decide it's not the right fit, you have the option to walk away from the deal when your lease ends but you’ll lose the option fee and—depending on your contract—you could lose your down payment savings

• Because the price of the house is calculated on how the market is expected to move, you might end up paying more than what the house is actually worth at the time you buy it

4. Other Texas rent-to-own companies:

Home Finder

Rent To Own Labs

Artistic Real Estate Group

Dallas Luxury Realty



Clarification box:

Rent credits, or purchase credits, are the portion of the monthly rent payments that are set aside and reserved to be applied toward the future purchase of the property. These credits act as a form of down payment or accumulated savings, helping tenants gradually build equity in the home they are renting to eventually buy it.


Rent-to-own homes in Texas FAQs

Can you do a rent-to-own in Texas?

Yes, you can do a rent-to-own in Texas. Many real estate transactions in Texas offer the option for a rent-to-own agreement, providing flexibility for potential buyers.

How do I calculate the payment of a rent-to-own in Texas?

To calculate the payment of a rent-to-own in Texas, you typically consider the monthly rent, any additional fees, and whether a portion of the rent goes toward the future purchase of the home, known as rent credits.

Is rent-to-own in Texas better than buying?

This depends on individual circumstances and preferences. Rent-to-own in Texas can offer flexibility and a pathway to homeownership for those who may not be ready for an immediate purchase. However, if lack of down payment is what’s stopping you, you’re better off going with down payment assistance programs. Visit Dwelling to find the one for you. 

Is rent-to-own in Texas better than renting?

Comparing rent-to-own in Texas to traditional renting depends on your long-term goals. Rent-to-own provides an opportunity to transition from renting to homeownership, potentially making it a better option for those seeking eventual ownership.

Who is rent-to-own good for?

Rent-to-own is good for individuals with:

• Limited credit history

• Insufficient down payment

• Uncertain long-term plans

• Wanting to test homeownership

Who is rent-to-own bad for?

Rent-to-own may not be suitable for people:

• Already financially stable

• Ready for an immediate home purchase

• Uncomfortable with the potential added costs and intricacies of a rent-to-own arrangement

• Seeking short-term arrangements

Buy the house of your dreams, minus the wait, with Dwelling

Need help improving your credit score? Dwelling can help. Need help getting your mortgage pre-approved? Dwelling can help. Need help securing the right down payment assistance program? Dwelling can help! 

With Dwelling, you can avoid the potential headaches and waiting times from doing a rent-to-own contract and go straight to becoming a homeowner. No strings attached, no stress, only smiles and jiggling keys. Ready to start? Just enter your income and see how much down payment assistance you’ll get

Happy home hunting, Texan dreamer! 

Buying a
home is closer than you think.