A rent-to-own agreement is a great option for those with bad credit, a lower income, or those who have little to no down payment. This option can also help those who want to buy a home, but want to test out a neighborhood before committing to the investment.

Entering a rent-to-own agreement means you will pay rent monthly, with a portion of the rent going towards a down payment for the home. At the end of the rent-to-own agreement, you will have the option to purchase the home and use the money you have accumulated. Since you won’t actually own the home for a portion of time, you may have questions about the mortgage and how it works. The following information can help you better understand how mortgages work for rent-to-own homes.

The Seller Holds The Mortgage

In rent-to-own situations, the seller will remain responsible for any mortgage existing on the property. The seller has to continue to make payments, even if the tenant pays the rent late. This process also means that the tenant has few rights if the mortgage holder does not make their payment. Be sure to research regulations and laws in your area to fully understand what can happen in this type of situation.

New Mortgage

Most rent-to-own agreements obligate the renter to purchase the home at the end of the contract. If the renter obtains a loan, they can purchase the property and become the owner. If the renter is unable to come up with the money, the portion of their monthly payment that was allocated towards a down payment may be lost.

Some rent-to-own agreements allow the seller to keep the money if the renter fails to purchase the home. However, there are some cases where the seller may agree to extend the rent-to-own contract or create a new one. This act could give the renter time to secure a loan to purchase the home.

If the contract is drafted to be a lease with purchase option agreement, the renter may opt into or out of purchasing the home. If the renter decides against buying, they may receive a portion of their money back. A lease with purchase option agreement allows a renter to pay an option fee to lock themselves into buying the home and lower rental payments. A renter can also use part of their monthly rent payment to pay the the option fee or hold off on paying the fee until later.

Alternative Mortgage Types

There are other alternatives to rent-to-own contracts. A buyer may agree to a mortgage assumption instead. This means the buyer will take over the mortgage and continue to make payments until the contract is ended. In most cases, mortgage assumption will require that the buyer meet the lender’s credit expectations. It can be quite difficult to qualify to assume a mortgage, almost as much as obtaining a new one. Some lenders may not allow this option at all.


Entering a rent-to-own agreement will represent a risk for both the renter and the buyer. It is wise to be careful and take precautions such as having a lawyer look over the contract before signing. If you are a buyer or renter, have an appraisal and an inspection performed before purchasing. You may also need to meet with a lender so you can determine the likelihood of getting the mortgage at the end of the rent-to-own agreement.

Not Interested In A Rent-To-Own Home? There Is Another Option…

IPS Amarillo offers homes through a lease with purchase option. This type of lease is perfect for people that don’t want to lose all their investments to rent, yet are not quite ready to commit to a mortgage. If you choose to pay an option fee, it will reduce your monthly payment. If you don’t want to pay the option fee, you will get a monthly credit towards your home purchase. Learn more about our Lease Options today!

We have many Available Properties in Amarillo and the surrounding area. For more information about the homes we offer, give us a call at (806) 220-6816 or Contact Us via email. You can also visit us in person at 5809 S. Western St. #260 in Amarillo, Texas.