Since the Great Recession, which officially lasted from December 2007 to June 2009, banks have instituted tougher lending standards, making it more difficult to qualify for a home mortgage. Without good credit and/or a solid down payment. would-be buyers may have to consider alternatives, including one that falls somewhere between renting and buying: the rent-to-own agreement.

In a rent-to-own agreement, you rent the home for a set amount of time (typically one to three years) before exercising an option (for which you pay a fee) to purchase the property when or before the lease expires. You get to move into the home right away, and then have several years to improve your credit score and accumulate savings for a down payment. Here, we take a look at how you can find these properties, and what you should take into consideration before committing to a rent-to-own agreement.

Finding Properties

Numerous real estate aggregators such as Realtor.com, Trulia.com and Zillow.com make it easy – and free – to search for properties to buy or rent. If you’re in the market for a rent-to-own home, however, it can be a bit more challenging to find available properties. Two places to try are HousingList and IRentToOwn (Google “rent-to-own” to find other websites). Both of these websites have rent-to-own listings from across the nation – just enter your desired city and state or zip code to display a list of available properties. In markets with no current availability, a list of for-sale and for-rent homes may appear.

Be forewarned: Rent-to-own websites typically charge a “membership” fee to view any information beyond an exterior photo and the number of bedrooms and baths. HousingList, for example, charges a nominal fee for a 7-day trial, after which point you will be billed $49.60 per month unless you cancel (you must enter your credit card information to pay for the trial). IRentToOwn won’t even tell you the fee until you register, providing both an email and a phone number.

Another option is to ask sellers if they would consider a rent-to-own agreement. This is especially helpful if you’ve found your dream house, but you just can’t make the finances work out yet. Many sellers are open to such agreements, particularly in areas where homes spend a higher-than-average number of days on the market. In these markets, many sellers have already moved into their next homes – perhaps to relocate for a new job – and the longer the old home sits on the market, the harder it is to meet monthly debt obligations for two mortgages. In addition, many homeowners are leery – and rightfully so – about leaving a home vacant, especially for an extended period of time. As a result, these sellers may consider a rent-to-own agreement, even if the home is not listed as such.

Note: Realtor.com publishes a Monthly Housing Summary that includes the median age of inventory for 146 Metro Statistical Areas throughout the nation. You can reference the summary to find out how long homes in your desired area stay on the market. Google “realtor.com monthly housing summary” to find the most recent report.

You can also try working with a real estate agent in your desired market. Agents may have listings for rent-to-own homes, or may have “inside information” about sellers who may consider such agreements.

Consider the Future

Before entering a rent-to-own agreement, it’s a good idea to meet with a mortgage lender to find out what it will take to qualify for a home mortgage. If you determine that you’ll still be unable to qualify for a mortgage by the time the lease expires, a rent-to-own agreement could become a costly mistake. That’s because in most rent-to-own agreements, you’ll pay the seller option money, which is generally nonrefundable, for the right to purchase the property later. You’ll also likely pay more in rent each month than the “going” market rate.

If it looks like you won’t be able to qualify for a mortgage when it would be time to buy, you’re better off with a standard rental – one that requires no option money and probably has a lower monthly rent. Use the time you rent to build your credit and save for a down payment. Then you’ll be able to pick from any home on the market in your price range. See Use Paying Rent To Boost Your Credit Score .

If the lender says it’s likely you will be able to qualify, consider the steps you need to take between now and when you could buy. Will you be able to improve your credit score and save for a down payment? Can you handle the other financial obligations of homeownership (insurance, taxes, maintenance, etc.)? These are all things to consider before entering an agreement to ensure that you are using your money wisely. Read To Rent Or Buy? The Financial Issues and To Rent Or Buy? There’s More To It Than Money .

Also be sure that the agreement you are signing is a lease option rather than a lease purchase. The second type commits you to buy the property at the end of the lease.

Ask Questions

If you are considering a particular property for rent-to-own, it’s important to ask lots of questions so you understand exactly how the agreement will work. For example, you should find out:

Who pays for maintenance and property taxes?

How (and when) will the purchase price be determined?

Will any portion of the rent be credited toward the home purchase? If so, how much?

Does the option fee count toward the purchase price?

Under what circumstances could the contract become void?

Under what circumstances would any up-front payment you make (such as an option fee) be refunded?

Will the seller serve as a lender, or will you need a mortgage before the contract expires?

Terms, including the answers to these questions, should be clearly stated in the rent-to-own agreement.

Be aware that most states have rent-to-own regulations (RTOonline.com, the Rent-to-Own Industry News website, has a list of state regulations ). Before entering into a contract with a seller, it is in your best interest to hire a qualified real estate attorney to review the documents and explain your rights to ensure your financial protection and security.

Even though you’ll start off renting the property, it’s a good idea to perform the same due diligence you would if you were buying the property. This means you should:

Carefully read any seller disclosures (to see what to ask about, see Real Estate Flipping: 8 Disclosures You Must Make )

Examine the title

Consider getting additional inspections, such as for pests (termites), water, radon and carbon monoxide

Once a rent-to-own agreement is signed and recorded, it becomes legally binding for both sides (the buyer and the seller). Be sure you understand the contract before signing.

There are instances where sellers try to scam buyers: In one case in Florida, for example, a landlord with hundreds of properties negotiated contracts that permitted evictions with just three days’ notice for items such as late rent and failure to make repairs. The buyers had signed the contracts, and the landlord was poised to take advantage. Again, always have a qualified real estate attorney review the contract and explain your rights – before you sign anything.

The Bottom Line

Rent to own can be a viable solution for people building up their credit and unable to get a mortgage. But these contracts can be problematic, as can searching online for rent-to-own properties. For additional information, read Rent To Own; Own To Rent and Rent-To-Own Real Estate Full Of Pitfalls .