You’re tired of renting. You’ve long wanted to buy your own home but
your credit scores simply aren’t high enough. Don’t despair, though, you
have one other option: You can rent to own.
As the housing market has slumped and sellers
struggle to move their residences, you might be seeing a growing number
of “For Rent” signs replacing “For Sale” versions in your neighborhood.
That’s because housing prices have fallen so steeply. Many owners know
that they won’t get the price they want for their homes in today’s real
estate market. So a growing number of them are offering to rent out
their homes as they wait out the bad real estate market.
This provides sellers with at least some income while they wait for housing values to start rising again.
The Rent To Own Solution
Many
of these rental houses may actually be rent to own properties. Renting
to own is similar to renting an apartment or taking on a car lease; you
move into the property and pay your monthly rent. But after a certain
period of time, which can often reach the three year mark, you have the
chance to outright purchase the home.
And here’s the biggest
benefit: Your landlord will withhold a certain portion of your monthly
rent that will be used as part of a down payment should you decide to
purchase the house. The benefits of participating in a rent to own
arrangement are many. First, by living in an actual house instead of in
an apartment, you’ll get a taste of what homeownership is all about. You
might discover that you don’t enjoy mowing the lawn or cleaning the
gutters. You might find that a home is simply too large and
time-consuming for you to handle. That’s fine; at least you discovered
this fact while renting, not after you took out a mortgage loan.
Rent
to own homes also provide flexibility. You can choose to simply renew
your lease instead of making an offer to buy. Or, you can also decide to
move on when your lease expires, perhaps back to the smaller, but
easier to maintain, comforts of an apartment unit.
Overcoming Low Credit Scores
Best
of all, though, a rent to own arrangement can get you into a house even
if your credit scores leave something to be desired. Mortgage lenders
today have tightened their lending standards. The reason for this is
obvious: During the housing boom, mortgage lenders passed out home loans
to borrowers with weak credit scores and mountains of debt. Not
surprisingly, many of these bad loans fell into default and foreclosures
soared.
Mortgage lenders have since learned the wisdom of
passing out home loans only to borrowers with strong credit scores and
reasonable monthly debts. This means that if your credit score isn’t
high, you might not be able to obtain a mortgage loan from most
conventional lenders.
Today, conventional lenders will require
you to have a credit score of at least 620. And if your score is under
the 750 mark, you can expect to pay higher interest rates. Borrowers can
still apply for a loan insured by the Federal Housing Administration.
Borrowers who have a credit score of at least 580 can qualify for an FHA
loan that requires a down payment of just three-and-a-half percent of
the home’s final purchase price.
Rent To Own The Best Option?
But
if your score is lower even than that, your best bet might be to enter
into a rent to own agreement. By doing this, you can take the steps
necessary to boost your credit score while still learning what it takes
to become a successful homeowner. And if you find that renting really is
the best choice for you? Then you’re fortunate that you’ve discovered
this fact before taking on the burden of a monthly mortgage payment.