Can you own a home if you have bad credit or do you have to keep renting? The answer is you can still own. The BAD thing about the current economic conditions and credit problems is that there is a giant rat race between the government and the banks on how to best solve the problems and jumpstart economic recovery. The banks have raised their credit score requirements and tightened lending because the government is breathing down their necks and telling them what to do – because of defaulted loans as a result of loosened past restrictions. Whoever was to blame aside, the reality is now, there are people who make money and could buy the overstock of home inventory….but the banks restrictions are too tight and credit is a problem.
The GOOD thing is that this has caused some sellers to be open to the idea of rent to own as a way to get their problem property off the dime. For the Seller, it is a chance to get a fair value for the price without a lot of negotiating. Finding the right buyer is the key. But it has to take the right buyer and the right seller. It IS possible and increasing in popularity.
Here is how it works…
- The buyer pays the seller fair monthly rent, plus a little extra that can be used toward down payment. This is liquidated damages if the buyer does not buy in the negotiated time period – usually one year or less.
- An agreement is signed for the purchase of the home, locking in the purchase price, after the prescribed amount of time.
- Agreements as to the use of the home and modification and care of the home are in the agreement.
- The Buyer works to achieve the loanable credit score
- After the time period, the home is closed as a refinance with the standard lending rules for FHA or conventional.
As the buyer, this is what you need to be a good candidate for this type of program:
1. Qualifying Income – You need to be able to qualify for the total sale price and the rental income. Usually must at least be 1/3 of your gross monthly income – mortgage payment/rental income.
2. Credit Score – Your credit score needs to be less than 100 points (usually 60-80) from a loanable score. Bankruptcies can be OK, but usually past foreclosures or short sales must ride their term before purchasing again.
3. Good References – You need to be able to substantiate to this seller that you are a responsible person. Good references from current and past landlords goes a long way. Job references – bosses (not friends), clergy, volunteer – any third party can be a good credible reference. This is all subject to the seller’s interpretation.
4. Down payment – Willingness to accumulate a down payment either at the beginning or by the end of the agreement can help improve your loan chances and show the seller your committment.
4. Commitment – You need to be committed to healing your credit score. There are a lot of ways to achieve credit correction without a lot of money. What it does take is planning and commitment to the plan to get the desired results.
It is possible, but you will need a team of professionals behind you. A Realtor who is familiar with this process, lender, attorney and correct correction expert are all necessary to guide you. This is not a slam dunk. It is new and again takes the right seller and the right buyer. But it does work!
RE Marketing Consultants has a team of Realtors and associates who know how to get this done. If you are interested, call us at 888-788-9544 for a FREE consultation or email firstname.lastname@example.org.