If you have recently been turned down for a home mortgage loan, it can be easy to get discouraged. You probably feel like your dreams have been shattered. This is especially true if you have already found the home of your dreams only to find out that you are at least a year off from qualifying for a loan.
If you are in this situation, it is time to get creative! Believe it or not, owner financed homes and rent to own homes are fairly easy to find in the current housing market. Depending on their situation, you may even be able to negotiate with the seller on a home that you have already found!
First, you need to consider whether you want to rent to own a house or try to get owner financing. There is a big difference. Owner financing offers tax benefits. If the contract is structured properly, it also qualifies you for the $8,000 homebuyer tax credit until April 30.
Houses for rent to own do not offer these benefits, but it does give you the flexibility as to whether you want to purchase the home at the end of the contract period. Depending on your situation, you may be more comfortable having the right to purchase but not legally being required to do so.
Before you decide which route you want to go, it is a good idea to talk to a mortgage broker. There are mortgage brokers who specialize in working with people with bad credit. They may have more experience in dealing with people who are in your situation. As such, they will be able to tell you what you are going to need to do to qualify for a mortgage.
If there is any doubt that you will be able to qualify at the end of the rental period, renting to own can be a safe option.
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When you have no credit, mortgage lenders assume the worst. You are perceived in the same light as someone with bad credit, a high risk, someone who does not have experience managing debt or any history of paying bills at all for that matter. Getting a mortgage with bad credit is possible but if you have no credit at all you may have to push the rock up a slightly steeper hill.
In 2005 and the years prior it was much easier to get a bad credit mortgage or a no credit mortgage. There were a ton of companies who would lend money to just about anyone. As you can imagine many of these companies are gone or have changed their lending policies and now it is much harder to develop the credit necessary for a mortgage. Many folks are determined to get into a home regardless of their credit score simply because they can’t imagine paying off someone else’s mortgage which is basically what you are doing when you pay rent. This makes sense to me however if this is the path you are choosing you need to be prepared for a giant interest rate, extra fees, strict terms, and extreme penalties if you are late or default on your payments in any way.
There are companies who specialize in no credit mortgages though. Most no credit mortgage lenders will require extravagant fees and have extra expenses due to the high risk of lending to someone with no credit.
You will need to ask your self if this is really the path you should take. Upfront fees could reach into the thousands. However, as with any mortgage you will be accumulating equity, slowly but equity none the less. You’ll need to honestly examine your resolve and figure out if renting for a few years would be less expensive than paying large fees.
If you do decide to rent for a few years first your plan will need to include improving your credit score. If you decide to go for a no credit mortgage you can always refinance three or four years down the road. All in all, by doing a little math and creating a budget for your self the answer should be apparent.
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Refinancing mortgages with bad credit can be a very dumb idea. The simple fact of the matter is, whatever put you in that situation to begin with could very well do it again, which means you will then owe more on your home due to the higher interest rate that came from having bad credit. This puts your home at risk, which is a very dangerous thing indeed. If you are suddenly unable to make a few house payments after refinancing, the home may get foreclosed on, leaving the borrower with a huge mark on their credit and no home. Renting is almost impossible after the foreclosure has come to pass as apartment complexes do check credit and reject those that they feel will be a high risk. (more…)
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