An estimated 50% of people that once qualified for a home loan no longer do due to tightened lending guidelines. If you are among this group, you understand that just because your credit may be less than perfect, doesnt mean that owning a home is not important to your family.
Like many others, you may be considering a lease option or rent to own home as an alternative to buying a home.
If you are serious about buying a home, this can be a good option. However, if you dont start doing what it takes to qualify for a mortgage at the beginning if the term, a Lease Purchase can be a financial disaster.
You probably understand that a good credit score is critical to obtaining a loan approval. Times have changes and a strong income and cash to put down are no longer enough.
You must start repairing your credit right away! Your first step should be paying off any recent collections. You will also want to pay your credit cards down as much as possible.
Part of your credit score is derived from the percentage of revolving credit that you are using. For this reason, you want to have multiple credit cards, all with low or no balance. Your score will be much higher if you owe $2,000 and have $40,000 available than if you only have $4,000 available.
If you have finance company loans you will want to get them paid off as soon as possible and have the accounts closed. While bank loans reflect positively on your credit score, finance company loans will actually hurt your score. The reason for this is because most people seek out finance company loans when they are desperate for cash. The credit bureaus see these loans as a sign of financial stress.
You will need to do more than just repair your credit because there are other factors which will impact your ability to qualify for a loan.
Income and job stability are key factors. You want to try to have a minimum of two years with the same employer. The exception to this is if you have changed jobs due to career advancement. This can be viewed as a positive.
Changes in available loan products have made it especially difficult for self employed individuals to qualify for a mortgage.
In the past, stated income loans were available to self employed individuals who were writing most of their income off for tax purposes. Because these loans are no longer around, even those with perfect credit scores are finding that they can no longer qualify. It is important if you are entering into a lease purchase that you begin to document your income immediately. Most lenders will require a minimum of two years verification.
Other than income and credit history, there are other things that can impact your ability to get a mortgage. If you are not a U.S. citizen, you should be especially careful about entering into a short term lease purchase. Non-citizens will need to establish their credit files and have cash down. Even then, there is no guarantee they will be able to get a mortgage.
By actively working on credit repair and paying attention to other factors that will impact your chances of loan approval, you can quickly be on your way to becoming a Lease Purchase success story!