Thus, renting-to-own a home presents an alternative route for renters who want to buy but can’t currently qualify for a mortgage. Future buyers have the opportunity to lease a home with the option to buy it before the lease expires. Although this may sound like the perfect plan, rent-to-own agreements can be quite complicated AND risky. Before getting into the pros versus cons of going the rent-to-own route, it’s important to understand the key terms to watch out for.
Key Terms:
Pros:
Cons:
There are also companies out there that will purchase a home of your choosing and will lease it back to you using the same rent-to-own method. However, such companies typically tack on an excessive amount of fees. Also, should you decide not to follow through with purchasing the home after your lease expires, you can be out of a lot more money than just your monthly “rent” payments.
It’s important to know that these companies do still run their own screening process as not everyone will be approved to go through their program. Although their requirements are lower than qualifying for a mortgage outright, they usually call for more upfront cash to compensate for other areas where normally a decent credit score and payment history would suffice. Below is an example of some of the fees you may incur when renting-to-own from a company.
Overall, the cons of rent-to-own homes outweigh the pros. Although buying a home the traditional way may take more time, it’s worth it and far less expensive. If you are wanting to purchase a home but don’t qualify just yet, it’s important to talk with a real estate agent about your options to make a good decision for your future.
]]>Here’s where having a student loan balance can get tricky. As mentioned earlier, student loan payments are factored into your debt-to-income ratios. Those ratios have to be within a certain range to get approved for a home loan. Thus, having high student loan payments can negatively affect the amount you can qualify for in a mortgage. Furthermore, within the last few years, FHA guidelines have changed to where lenders now calculate student loan payments at 1% of the total loan balance. For example, on a student loan balance of $50,000, the lender will include a monthly payment of $500 into your calculated DTI ratios, regardless of whether you’re currently paying that amount or not. For some, the added $500 payment when compared to their income either significantly reduces the purchase price that borrower would qualify for or worst, could disqualify them for a home loan altogether.
It’s important to note that not all loan programs follow this method of calculating student loan payments when evaluating a borrower’s documents for loan approval. Conventional loans still base their numbers off what the buyer is currently paying monthly.
Fortunately, there are tons of people out there with student loans who have successfully purchased homes and they didn’t have to be millionaires to do it either. If education is making your DTI ratio too high, there are some steps you could take to help qualify.
The main takeaway, student loans can directly affect your eligibility for a home loan. However, with proper knowledge and preparation, your dream of owning a home is closer than you think!
]]>Prior to the coronavirus, there was already talk of an expected housing “correction” as many financial experts perceived the prolonged success of the real estate market to be nearing an end. As a realtor, I’ve been asked countless times by buyers waiting for the “best time”, if I believed the market will crash soon and if home prices will drop. My response is always the same, “no one can predict the future.” However, based on current home sale stats there was no indication a housing crisis was in the near future although, history has shown the real estate cycle to last 7-10 years. So with the break of the Covid-19 pandemic and the economy basically on pause, many buyers with home contracts are concerned that buying now poses a tremendous risk as their home could be worth much less in the coming months. Similarly, you have several future homebuyers waiting to buy in hopes of catching an amazing deal by buying a home at a crazy low price. Either way, the uncertainty of how long businesses will be closed leaves many people in limbo as they “wait to see what happens.”
As of now, home prices have not been affected by the pandemic and we are still operating in a seller’s market here in Florida. New construction builders, in most cases, have increased their incentives to buyers by offering to pay all closing costs and buy down interest rates. I’ve even seen one builder go as far as to include an 86 inch tv with all new home purchases. Wow! With so many added bonuses, many buyers have been encouraged to buy now as deals appear to be even better than they were before the pandemic.
At the end of the day, it’s always advised to do what’s best for you and your family. If you’ve lost your job or are concerned about the continuation of your employment due to the stay at home orders, now may not be a good time for you to purchase. However, if you feel your financial situation is secure and were planning to buy a home this year, now may be the time to take that leap. Banks have already put into play additional standards and practices to ensure buyers are not overextending themselves and to reduce their risks of defaulted loans. Some of these changes include raising minimum credit scores on some loans, lowering the maximum debt-to-income ratios, requiring that employment verifications be completed the day of closing instead of the week before, etc. Unfortunately with these temporary policies in effect, some buyers won’t be approved. However, the proper precautions are being taken to prevent a crash like the one we saw a few years back.
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