How Rent to Own Works When You Don’t Qualify for a Mortgage
Are you hoping to buy a home even though your credit doesn’t qualify you for a traditional mortgage loan? If so, you may want to consider a rent-to-own arrangement. Here’s how rent to own works Renting-to-own allows a prospective buyer to live in a home and pay rent during a lease term, after which time the renter has the exclusive first option to purchase the home. Since the lease period is typically 1-3 years, a rent-to-own buyer has valuable time to take steps to improve credit before applying for a mortgage loan. Follow these expert-advised steps to improve your financial health while you rent-to-own your dream home:
How Rent to Own Works
Check for errors in your credit report.
You can access it for free once per year through annualcreditreport.com, and you’ll want to keep your eye out for things like demographic information that doesn’t belong to you, accounts that you don’t remember opening and debts you paid off that still show a balance owed.
Make payments on time, every time.
After you’ve addressed any errors with the credit reporting agencies, focus on making on-time payments on all your remaining accounts. How rent to own works requires several financial steps. Most banks allow you to set up automatic online payments, which ensure you never miss a due date, but you can also set reminders on your smartphone if you prefer writing checks.
Adopt a debt payment plan.
Paying down your debt, especially high-interest credit card debt, can be key to qualifying for a mortgage loan. Experts advise using 30 percent or less of your available credit in order to boost that all-important score.
Don’t open any new credit accounts. Each new account you open is a blemish on your credit report, and mortgage lenders will hold them against you when you apply for a mortgage.
Renting-to-own can offer a tremendous opportunity for a prospective buyer who needs time to get their financial house in order. By following the recommended steps above, you’ll soon position yourself for mortgage loan approval on the home of your dreams.
Image via Flickr/williamdoherty