I dealt with owner financing and rent to own situations quite a bit in my prior jobs. With a few exceptions, they generally aren't great deals for the buyers.
In a rent-to-own situation the renters typically pay, for example, $1,200 a month of which $1,000 goes towards rent and the remaining $200 towards your down payment. After five years you would have $12,000 paid towards the house and you would go secure traditional financing for the balance of the purchase price. Ideally, you would pay 20% over the term of the lease so you would be all set to get a bank loan for the rest.
(I just pulled numbers out of my head)
There are many, many things to consider before entering into this type of arrangement. Just a few:
Are you paying market rent for the house? (I am using you as a general term) If you are paying above market rent, it is not a good deal. This is where emotions often come into play, people are really anxious to own and will overlook the true cost of the deal. If you are paying market rent, why not just rent a house and save seperately for a down payment?
Who handles maintenance, repairs, property taxes and insurance? It should be the owner, not you.
What happens if you no longer want that house? Or experience a financial set back? All of the money towards the down payment will be lost.
Owner financing is where the property is deeded to you and the seller secures his collateral by placing a lien against the real estate. You don't pay, the owner gets the property back through foreclosure. In theory, it is like getting a loan from a bank.
At the shady end, I saw lots of inflated sale prices as well as high interest rates. When people can't qualify for traditional financing, they tend to make bad decesions when entering into owner financing situations.
If the sale price is right, the interest rate is fair and the amortization is reasonable, it can work for both parties but more often then not, it is a far better deal for the seller than the buyer.