‘Rent to Own’ (RTO) can be defined as an informal type of transaction that rents assets with the condition that it will be owned by the renter if the term of rent is finished or that the lease can be converted to a sale for a nominal fee at that time.  ‘Rent to Own’ is also defined as “A lease-to-own house purchase (also "rent-to-own purchase" or "lease purchase") is a lease combined with an option to purchase the property within a specified period, usually 3 years or less, at an agreed-upon price. The borrower pays an option fee, 1% to 5% of the price, which is credited to the purchase price. The borrower pays rent, and an additional rent premium that is also credited to the purchase price. If the purchase option is not exercised, the buyer loses both the option fee and the rent premium.”

These definitions generally describe the process of renting a home to own it ultimately within a specified period of time under certain terms of agreement between the renter and the seller.  The other way to describe the ‘Rent to Own’ process is as follows: "Rent to Own" or "Lease to Own" or "Lease/Option" or "Lease or Rent with the Option to Buy" All these terms mean the same process of the deal of renting a home to buy it later.  In this arrangement you are entering into an agreement to rent or lease your new home with the option to buy it at a later date with cash or using a loan or mortgage finance.

However, you are not under any obligation to buy the home (no one can force you to buy it) but you have the exclusive right to buy the house at the previously agreed price at the end of or during the lease-option period according to the agreement.  Most of the buyers enter into this kind of agreement for the purpose of getting into the home they eventually want to buy without having to deal with banks or qualifying up front. It gives them time to repair their credit or "build" credit to obtain financing for buying while renting the home they eventually want to buy.”

All these definitions of ‘Rent to Own’ point to the alternative method of owning a house with the intention of buying it later.  This is a process mostly used by those who do not have the funds for down payment or those who find it difficult to obtain traditional forms of financing to buy a house.   This process also helps these people to live in the house even before buying it on a rental basis.  This option is beneficial for the home buyer to own the house eventually using a legal process of entering into an agreement with the seller of the house.  This arrangement is therefore called ‘Lease to buy.’   The renter has to pay a fee to exercise the lease option.  If you decide to purchase the house a portion of the pre-agreed rent will go towards the purchase price of the house.  This is a good way to use the rent money for the purchase of the house instead of allowing the rent money going waste as in the normal renting process.