Rent-to-own scams can turn the dream of homeownership into a nightmare.

Rent-to-own deals always involve some risk for both the buyer and the seller – but sometimes they’re downright scams.

Tired of renting with nothing to show for it? If you’ve always dreamed of owning your own home, but you’re not sure you can afford it, you might be wondering if a rent-to-own agreement is the right solution. It sounds easy enough: Part of your monthly rent goes toward the home’s purchase price, so at the end of the set term, you’ll own the home. Rent-to-own deals aren’t as common as renting or buying a home and they always involve some risk for both the buyer and the seller – but sometimes they’re downright scams. How can you tell a legitimate rent-to-own offer from a scam? In this article, we’ll look at eight common rent-to-own scams, red flags to look out for, and ways to stay safe.

8 Common Rent-to-Own Scams

Here are eight types of rent-to-own scams to watch out for:

1. Seller Pockets Your Payments: In a typical rent-to-own agreement, the homeowner agrees to sell the home to you at a future date for a specified price. The rent you pay will be counted toward your future down payment. But when the offer is a scam, the seller pockets your monthly payments instead of applying them toward your equity.
2. “Seller” Doesn’t Own the Home: In this scam, the “seller” doesn’t actually own the home – so they can’t legally sell it to you. Here’s how it works: A con artist advertises a house that isn’t theirs and pretends to be the owner so they can collect a non-refundable deposit or upfront fees from an unsuspecting potential tenant. To pull this off, a scammer finds a vacant house for rent and then lists it online using their own contact information. They meet with the interested tenant and ask for a deposit to hold the home. Once they pocket the cash, they disappear.
3. Seller Who Is Behind on Mortgage or Taxes: Sometimes, rent-to-own opportunities are advertised by desperate homeowners who are behind on their mortgage payments or property taxes and looking for buyers to foot the bill. If you get caught up in this scam and want to stay in the house and eventually buy it, you could get stuck with a huge bill. If property taxes aren’t up to date, the house may have a lien on it. Depending on how behind the current owner is in payments, the house could also go into foreclosure, which means you’ll lose the money you’ve already paid – along with the home.
4. Broken Promises: It’s common for a house to need repairs, but watch out for scammers who want you to sign a rent-to-own contract before they fix anything. While they might promise to make repairs, once the contract is signed, they rarely do. To protect yourself, always read the rent-to-own contract carefully to understand if you are responsible for making necessary repairs or improvements.
5. Inflated Selling Price: In this scam, the homeowner overinflates the selling price of the home. If you end up buying, you could owe more on your mortgage than the true value of your home – this is called being underwater in your loan. An inflated selling price can also mean making a larger down payment than needed.
6. Hidden Safety Issues: In this scenario, the house offered as a rent-to-own option has hidden safety issues like lead, asbestos, mold, or water damage that would prevent a traditional sale on the open market. If you sign a contract and end up buying the home, you could get stuck paying to correct these problems. If you walk away once the contract expires, all the money you’ve paid will be for nothing.
7. Sneaky Clause: It’s important to always read the fine print, or even having a lawyer review the contract, before you sign. A shady homeowner could slip in a sneaky clause that triggers an eviction process if you miss a single payment – even if by just one day after years of paying on time. They may also add other things that can trigger a default, like violating a “no pets” clause or not making timely repairs.
8. No Real Home: In this scam, there isn’t even a real home to rent or buy – the scammer just posts ads as part of a phishing attempt to trick you into providing sensitive information they can use for identity theft – or to steal your “application fee” or “deposit.” Never give out any personal or banking information upfront.

Sticker Shock

While it’s not a scam, most rent-to-own agreements require that you pay a nonrefundable one-time fee – typically 2.5% to 7% of the purchase price. For a $300,000 home, that’s between $7,500 and $21,000 – more than what you’d pay in closing costs if you were buying a home. It might make more sense to put that money in a savings account or a mutual fund and let it grow with interest so you can afford to buy a home sooner than with a rent-to-own arrangement.

Red Flags to Watch Out For

Here are some red flags that could mean a rent-to-own opportunity is a scam:

• The ad for the property has no photos, or the owner won’t let you visit the property first. This could mean the house is in rough shape – or that there’s no house at all.
• The home’s future sale price seems way too high – or too low. Scammers may try to hook you with a low-priced “deal” in an effort to steal your personal information.
• The seller’s correspondence is full of typos or odd language. This is a sign you’re not working with a professional.
• They want you to fill out an application or pay a fee upfront, before seeing the property or signing a contract.
• The rent-to-own contract is incomplete or vague. Scammers rely on people not fully reviewing contracts before they sign.
• The seller urges you to sign the contract quickly, claiming that other people want the property too.

Ways to Protect Yourself

Here are some ways you can stay safe from rent-to-own scams:

• Don’t give sellers money or personal information upfront.
• Ask the seller for references, and research them online.
• Verify who owns and holds liens on the property at your local assessor’s office.
• Get the home independently appraised and inspected by a professional.
• Understand if you’re being given the option to buy – or if you have an obligation to buy – at the end of the lease.
• Clarify who is responsible for repairs and maintenance while you’re renting. Some contracts stipulate that repairs are the tenant’s responsibility.
• Consult a lender about your ability to secure financing when it’s time to buy the home.
• Review the rent-to-own contract with an attorney before you sign it.
• For homes with sellers who are behind on bills, research the owner and consult with real estate agents before proceeding. You can also check sites like foreclosure.com to make sure the home isn’t in danger of foreclosure.
• To avoid signing a contract for a house with an overinflated selling price, look at similar houses in the area to get an idea of average prices.

What to Do if You’re a Victim of a Rent-to-Own Scam

If you believe you’ve been a victim of a rent-to-own scam, here’s what to do.

• Call your financial institution immediately if you’ve sent money or sensitive data.
• Contact the website where you encountered the scam.
• File a report with your state consumer protection office.

Finally, keep in mind that it may be possible for you to buy a home now. Reach out to a lender to see if you can qualify for a mortgage. There are many programs designed for homebuyers who need to make a lower down payment or have less-than-perfect credit – so explore your options.