The Hidden Pitfalls of Lease-to-Own When It Comes to Getting a Mortgage

At my open house yesterday, someone mentioned that they had set up a lease to own situation with their current landlord. This inspired this post..lease to own can work..but it takes some careful planning, and you should speak to your mortgage broker about the best way to do it.

Lease-to-own (or rent-to-own) agreements can seem like a great way to transition from renting to homeownership, especially if you’re not quite mortgage-ready. But when it’s time to secure a mortgage, these agreements often create unexpected roadblocks. Here’s why:

🔸 Down Payment Challenges – Many buyers assume that the rent credits they’ve paid count directly toward their down payment. However, mortgage guidelines often limit how much of those credits can be used, and the lender will require proof that they exceed fair market rent.

🔸 Property Value Risks – If the purchase price was set years ago in the lease agreement, but the home’s appraised value is now lower, lenders will use the appraised value—potentially leaving buyers short on financing.

🔸 Loan Approval Issues – Depending on how the lease is structured, some lenders may not treat the transaction as a purchase, making it harder to qualify under standard loan programs.

🔸 Title & Contract Problems – If the seller has financial trouble, a lien or foreclosure on the property could derail the deal. Also, not all lease-to-own contracts meet lender requirements, forcing buyers to renegotiate or risk losing their investment.

🔸 Limited Loan Options – Not all mortgage programs allow for lease-to-own scenarios. FHA, VA, and conventional loans all have different rules about lease credits, seller concessions, and required documentation.

Bottom Line: Lease-to-own might sound like an easy path to homeownership, but without proper planning, it can make securing a mortgage much harder. If you're considering this route, let's talk early to ensure you’re setting yourself up for mortgage approval when the time comes! 💡🏡

Have questions? Send me a message! 📩