2.8 min read
Many of us feel that we are only as good as our credit score regarding financial institutions. So, for those interested in rent-to-own opportunities, you may wonder, “What credit score do I need for a rent-to-own home?”
What Minimum Credit Score Do I Need?
The truth is, there is no definitive minimum credit score for a rent-to-own home. Lenders are more interested in whether you can improve your credit score to their standards by the time you reach the mortgage phase of your rent-to-own agreement. They want to know that you can buy the property at the end of the contract.
Remember that, despite there not being a standard for a minimum credit score, the seller will likely check your credit report. They want to see that you are at least trending towards improving your score and not in a downward spiral.
Other Factors for Rent-to-Own Eligibility
Other specific factors can impact your rent-to-own eligibility. These offer reassurances to the seller that you can complete the agreed-upon contract.
First and foremost, the seller needs to know that you can afford the monthly rent. If you can’t afford the rent, you will not have the financials to get approved for a loan at the end of your rent-to-own agreement.
You will need to provide copies of your recent pay stubs to verify your income. Generally, they want your rent to be 30% or less of your net income. A stable income can add merit to your ability to improve your credit enough to qualify for a mortgage by the end of your agreement.
Demonstrate a Credit Improvement Plan
Showing the seller a credit improvement plan can significantly improve your rent-to-own eligibility. The end of a rent-to-own contract requires you to get a mortgage to buy the property, and a credit improvement plan shows that this is possible for you to achieve.
Before you can even begin a rent-to-own agreement, you will have to pay various fees. These may include option fees, the first and last month’s rent, and a security deposit.
The seller will want to perform a background check to understand your personal history. They are looking for any past criminal charges and ongoing or past legal issues. Your history as a tenant can help the seller trust that you will adhere to the agreement. Conversely, if you have any evictions on record, this is a major red flag for the seller.
Is Rent to Own the Right Choice?
If you meet these qualifications for a rent-to-own agreement, they will work with you on your credit score. However, if you aren’t sure you can complete this agreement, rent-to-own may not be the right choice. The last thing you want is to take this stride to improve your credit score and end up worse off than you were in terms of creditworthiness.