Rent-to-own, also called rent-to-buy or lease with an option, lets you rent a home at an above-market rent or with an option fee, with a right to buy it later. It is legal in NSW, but you are not the owner until the title is in your name, and if you cannot get a loan at the end, the extra money is usually lost.

Rent-to-own compared with low deposit routes
Route You own the home from Main risk
Rent-to-own or vendor terms When title is finally transferred Losing payments if you cannot buy
5% Deposit Scheme Settlement A larger loan
Family guarantee Settlement The guarantor’s exposure
Help to Buy Settlement, with a government share Sharing the gain

How does a rent-to-own deal work?

There are two common forms. In a lease with an option, you rent the home, pay an option fee or a rent above the market rate, and get the right to buy at a set price by a set date. In a vendor terms or instalment deal, you pay a deposit and regular instalments to the seller, and the title transfers only when the price is paid or refinanced. Either way the seller stays on the title, and you depend on getting a bank loan at the end.

What are the risks?

  • You do not own the home. Until your name is registered on the title, the seller does.
  • The premium can be lost. If you miss the deadline or cannot get finance, the option fee and extra rent are usually gone.
  • The price may be high. The agreed price is often well above today’s value.
  • The seller’s own loan. If the seller defaults on their mortgage, their lender can sell the home.
  • Repairs and costs. Some contracts push owner costs onto you without giving you ownership.

Consumer advocates have called for these deals to be banned for homes, and in one NSW case the Supreme Court found a rent-to-buy contract unjust because the buyers built up no equity and risked losing their payments.

Why do people consider rent-to-own?

Usually because a bank has said no, or the deposit seems out of reach. Before signing, it is worth knowing that many people who think they need rent-to-own can already buy through a low deposit route, or will be able to after fixing a credit file or a few months of saving.

What are the safer alternatives?

Can you get a home loan at the end of the lease?

Only if you qualify at that time, like any other buyer. The lender will value the home, check your income, expenses and credit file, and ask where your deposit came from. Premiums paid to the seller usually do not count as your deposit unless the contract credits them to the price, and even then a lender may treat them differently from savings. If a broker reviews your position before you sign, you will know what has to change for a loan to be approved at the end date.

If you still go ahead, what should the contract say?

  1. The purchase price, or how it is set, and the deadline.
  2. What happens to your payments if you do not buy.
  3. Who pays rates, insurance and repairs.
  4. Whether the seller has a mortgage, and what happens if they default.
  5. Whether your interest can be protected, for example by a caveat.

Have a NSW solicitor review it before you sign, and get a broker’s view on whether you would qualify for a loan at the end date.

A worked example

A tenant agrees to pay $150 a week above the market rent for three years, with an option to buy at an agreed price. That is about $23,400 in premiums. If at the end the bank values the home below the agreed price, or the tenant cannot get approval, the $23,400 is usually lost. The same amount saved in an offset or savings account would be most of a 5% deposit on a $500,000 unit and would still belong to the tenant.

Questions people ask

Is rent to own legal in NSW?

Yes, these agreements are legal in NSW, but they carry real risks and should be reviewed by a solicitor before signing.

Do rent-to-own payments count as a deposit?

Only if the contract says so and the lender accepts it. Many lenders do not treat premiums paid to a seller as genuine savings.

Can I rent to own with bad credit?

Sellers often market to people with bad credit, but you still need a loan to buy at the end. Fixing the credit file first is usually the better path.

Charles Touma checks whether a low deposit loan is already possible before you commit money to a rent-to-own deal. A free 30-minute call covers the routes and what would need to change. General information only, not credit, legal or tax advice.

Sources: Consumer Action Law Centre, vendor terms and rent-to-buy schemes; Law Society Journal, rent-to-buy contract found unjust; Housing Australia, 5% Deposit Scheme, checked 18 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.