If you are like many Americans, you may no longer be able to qualify for a mortgage. Perhaps your credit is less than perfect, or perhaps you have only been self employed for a short time. Whatever the reason, your inability to qualify does not mean that owning a home is not important to you.
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.
Most everyone understands that a good credit score is the single most important factor in determining your loan approval. Unlike a few years back, in today’s economy, good income and a down payment wont overcome bad credit!
You need to begin repairing your credit immediately. The first thing you will want to do is pay off any current collections and pay your credit cards off.
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 existing loans with a finance company, they should be paid off quickly. Unlike bank loans paid on time, finance company loans lower your credit score. This is because they are considered a sign that you are strapped for cash and as such had to seek out a high interest loan.
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.
If you are self-employed, qualifying for a mortgage is especially difficult due to changes in loan programs. Most people that are self-employed are taking full advantage of the tax code, and as such, do not show much income.
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!
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