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You Don’t Have to Have Perfect Credit to Own a Home! Why Not Rent to Own?
If you are struggling to qualify for a mortgage, you’re not alone! Disappearing lenders and tightened underwriting guidelines have left millions of American’s in the same boat!
While it may be tempting to throw in the towel and just rent after you’ve been turned down for a mortgage, don’t give up your dreams just yet!
Why not Rent to Own a home?
Rent to Own homes, also know as Lease Options, are becoming more and more widely available across the United States.
Quite simply, you lease the home for a set period of time (typically at least 24 months) with an option to buy the home at the end of the period. The price of the home will be set at the beginning of the term, so you know exactly what you will be paying up front!
The seller will usually require between 2%-5% as an option fee to lock in the home price and have the exclusive option to purchase the home. This means that the seller must sell the home to you at the end of the term, but you are not obligated to buy.
Most all Lease Option or Rent to Own contracts will have some sort of rent credit. This is the amount of your payments that will be credited back towards your purchase price when you go to get a mortgage.
For example, if you buy a home for $ 515,000 with a $ 15,000 rent credit, when it comes time to close on your mortgage, you would only owe the seller $ 500,000. Assuming your term was 24 months, $ 625 of every payment you have made will have gone towards the purchase price.
Additionally, many lenders will allow you to use the appraised value rather than the purchase price at the end of the term when qualifying for a mortgage. This, combined with the rent credit, could possibly mean that you have very little additional down payment to make. (Of course there is no guaranteed to this.)
Another benefit of a Rent to Own or Lease Option contract is that you have the option to buy the home but are not legally bound to do so. With volatile home prices, having an out is a great strategy. This is the biggest reason I recommend that buyers do a Lease Option versus a Lease Purchase.
In addition to financial benefits, there are many psychological benefits of Lease Optioning a home versus just renting. Because you are planning on purchasing the home some day, you are much likely to think of it as your home. Additionally, unlike a single year lease, you know you will be there for at least two years. This means you can settle in and think about doing thinks that make a home feel like your own – like painting and planting.
Both financial and psychological benefits make leasing with an option to buy a great choice for those who would like to by a home but cannot qualify in today’s market. After all, doesn’t your family deserve a home of their own?
Related Home Mortgage Articles
Refinance or Loan Modification
Foreclosure is definitely one of the hardest things anyone has to face. Imagine losing your home, a place your children grew up in, and the place you thought youd have for years to come. The economic situation in the entire country has left families and individuals homeless and others are on the verge of losing it all.
For the families and homeowners who still have time to save their homes, there are two solutions that might just save your home Refinancing and Loan Modification.
The complexity of the foreclosure problem means that there are differences in each loan or mortgage. The circumstances of the delinquent borrower are also factors in deciding which solution is best for you. However not all applicants will get approval for refinancing or loan modification.
Which would be best? There is no exact answer to this question because every mortgage is different so what may be better for your neighbor might not work for you. However, each of these solutions has its own advantages and disadvantages.
Refinancing:
In a refinancing strategy, your old loan is replaced with a new one where terms are changed to one you can handle and pay. For example interest rates can be lowered or payment terms extended from 15 years to 30 years. This is seen by many as a more permanent solution compared to modifications.
While there are various advantages to refinancing mortgages, there are also challenges in the strategy. You have to pay for closing fees to your new lender that can be quite a huge amount for a family already facing foreclosure. Its also difficult to get approval because of a lot of requirements you have to meet. Declining market value for your property, for instance is a major no-no. A property appraisal is required in your application. Underwater mortgages are almost immediately denied. Loss of income is an automatic red flag for your potential lenders as well.
Loan Modification:
Loan modification is more forgiving in that it takes the delinquent lenders hardship into consideration. In some cases, the lender can lower the principal it self to reflect the decreased market value of the property. In negotiating new affordable monthly payments, lenders will consider your living expenses so you can pay your mortgage but still have money to pay your utilities. Loan modification also helps you keep your credit score where it is.
Another advantage is that while processing your loan modification, the foreclosure process is halted and you get another chance to keep your home. In the new government loan mod program, desperate borrowers are counseled by financial experts so they can avoid getting into foreclosures in the future.
There are only a few disadvantages to loan modification. Many of the lenders do not offer the government loan mod program (HAMP) but they have their own in-house strategies. Borrowers can only apply to the program if they can prove their hardship like a loss of family, loss of income, etc. Lastly, the borrower cannot increase the loan and take out equity.