Most people looking at rent to own homes are doing so because owning a home is important to them, but they do not presently qualify for a mortgage. While it isn’t necessary for you to be able to get a mortgage today, getting a loan is the ultimate goal. Because bad credit says in your credit file for at least seven years, chances are you will be looking for a bad credit home loan.
Now, before you get relaxed and think that you can just sit back and ignore your credit, you need to understand that it is difficult to get ANY mortgage loan in this market, especially home loans for bad credit. Gone are the days of subprime lending and no doc loans where all you had to do was have a pulse to get a home loan. In fact, in today’s lending environment, the FHA loan is the go to bad credit home mortgage loan.
And, even FHA won’t consider credit that is all that bad. As of new changes in 2010, most lenders will now not consider any borrower with a score that is less than 620. This means if your score is lower, it is going to take some work to get it up. START NOW on credit repair! Just because you have a two month rental term doesn’t mean that you can ignore your credit until six months before it is time to get a loan. Credit report repair takes time and depending on your situation, it could take you between two and three years to get your score up to where it needs to be to qualify for a bad credit home loan.
If you have filed for bankruptcy or have very limited open credit for some other reason, establishing need credit is going to be very important to you. Underwriters are going to want to see at least three open and active trade lines. Although alternative trade lines are accepted, (utility bills, cell phone bills, etc.) it is generally accepted that traditional forms of credit are preferred, especially for those with a history of bad credit. Remember – getting home loans with bad credit can be challenging. You want everything within your control to be as perfect as possible!
Something else to consider is your income documentation. If you are an employee with a single job, things will be fairly straight forward. But, if you are self-employed or need a second job to make ends meet things can get a bit dicier. For the self employed, you will need to make sure that you can provide two years of tax returns that substantiates your ability to pay for the home. This can be very difficult for those with new businesses who are writing off most of their income legitimately. Since there are no stated income loans available at this time, it is critical that you make a determination now as to what is most important to you. If tax savings is your priority, owning a home may not be in your near future.
Getting a bad credit home loan isn’t easy, but with some work you can do it – even if you have a bad credit rating now!!
By the way, if you have not already, take a look at our very own credit repair program. We will teach you everything you need to know to repair credit like a pro!
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Does this program apply to year old bankruptcy?
Sandy:
Yes, it applies. Most mortgage lenders now require 24 month's seasoning from the bankruptcy discharge date. Fortunately, our program is no credit qualifying so the bankruptcy is not a factor with us.