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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.
Rent To Own Homes – Benefits
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.
Is 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.