I speak with so many potential buyers that are looking to rent or whom inquire about rent to own options. The two main reasons people think they cannot own a home are:
- Not enough cash for a down payment
- Credit score
Point #1: You don’t always need a large amount of cash to purchase a home. There are many loan programs available in which a smaller amount is needed. USDA, for example, is no down payment. FHA is 3.5% down. In addition to the down payment, there are other fees as well, BUT there are options.
- Ask for sellers assist. Up to 6% of the sales price is a typical amount the seller can pay for closing costs for the loan types mentioned above.
- Ask your lender about gift funds.
- See if your lender participates in the PHFA Second Mortgage program. (A 0% loan to cover the down payment)
Let’s look at a $100,000 home example: A 3.5% down payment would be $3,500 and estimated closing costs would be $7,500 including all title insurance, appraisal, recording fees, taxes, etc. but you can ask for $6,000 in sellers assist if the seller agrees. So, you would need ABOUT $5,000 in liquid cash to purchase a $100,000 home.
Of course, this is just an example and there are many variables such as the tax amounts and interest rates. It is ALWAYS important to talk with your lender about your options as there isn’t a cookie cutter plan for everyone.
Point #2: Your credit score isn’t quite where it needs to be. Credit criteria has tightened up in these last few weeks, making it tougher for anyone with a credit score under 640 to borrow for a mortgage. Unfortunately, we don’t have a magic wand for this one, BUT a good lender will look at your credit report and know exactly what needs to be prioritized in order to increase your credit score for down the road. It could be 3-6 months down the road if you play your cards right.
If I had a dollar for every time someone said “I don’t want to talk to a lender until I’m ready to buy.” That’s like saying “I don’t want to go to any interviews if there is a chance I won’t get the job.” You don’t know where you stand until you take the steps to move forward. There isn’t an obligation to buy a home when you talk to a lender. They are there to get you to where you need to be sooner than later and their professional advise is crucial if this is your long-term goal.
The moral of this blog post: You don’t know your options until you ask what your options are! Choose people that will be by your side in the long term to meet your goals. Your Realtor® and lender are your partners in this journey to get you to where you want to be…to help you find the right key that unlocks your next dream home!
*Informational purposes only and to be conceived as mortgage or legal information. Different lenders have various options and lending criteria.