As a mortgage broker for over 30 years, I can tell you that home financing has become a fine art over the years.
Whereas mortgage loans were once given only to those with perfect credit, a great employment history, and large reserves in their bank / savings / stock accounts, things have changed.
Why? Because there are not enough consumers with those qualifications in today's market to allow mortgage companies and banks to make mortgage loans in order to secure the portfolio they so desire. So what is the solution? Offering "sub-prime" loans to applicants who have little or no credit; poor credit; unverifiable income; Little or no savings reserves; Etc.
So why are these loans attractive to lenders? Well, for one thing, the "yield" … or money they make on these loans … is much greater than the money they make on "premier" or "clean" loans. People with wonderful credit, lots of cash, and fantastic earnings are few and far between, especially today.
What do lenders offer to the "less than perfect" borrower?
Higher rates, for one thing. Perhaps higher closing costs. But guess what? A lot of times a purchaser of a home can get the seller to pay these closing costs! The purchaser may have to pay a bit more for the home, but as long as the appraisal that the lender orders matches the purchase price, who cares? It is still better to OWN a home rather than RENT! Consider the tax write-offs, the escalating prices of homes which will eventually end up as profit for you, as the buyer. Never, ever rent if you do not have to.
A popular way to buy a home today is with a "Lease-Purchase". This is an easy way for folks who have little or no or bad credit to buy a home in today's escalating market. You may need to negotiate with and convince your seller to sign a contract with a Lease-Purchase clause.
It goes something like this: You agree to lease the property from the seller for a certain period of time with the condition that you will buy it with or without a mortgage loan after so many months or years. Generally, a lease-purchase does not last for more than a year. Sometimes, a certain portion of the lease goes towards the purchase price agreed upon after signing the agreement:
Example: You sign a contract to buy a home for $ 250,000.00. You agree to put down a deposit (usually required by the seller) of $ 10,000.00 with monthly payments of $ 1000.00 per month with $ 750.00 per month going toward the purchase price. The lease-purchase lasts for six months with the stipulation that you will buy the home at the end of this time. With $ 750.00 going toward the purchase price, you will have already put down 4500.00 towards the sales price when the contract "comes due". At that time, you will secure financing … hopefully you have been shopping for this during your rental term … or the owner will finance for you. Perhaps you have more money after six months to put down on the property. Also, guess what ?? The property has probably already increased in value, meaning that you have BUILT IN EQUITY after six months.
So why rent when you can buy with a Lease Purchase? I can not think of a single reason unless there is no one willing to agree to this kind of contract. And let me tell you, with this being a "Buyer's" market, I am sure you can search the newspapers, "little" papers, the internet and even talk to Realtors who know of such properties you can buy with Lease Purchase Terms.
There is absolutely NO reason why you can not buy a home of your own … unless you are lazy, do not want to commit to a purchase other than a rental, or have absolutely NO CASH, NO source of getting (or borrowing) cash for the small reserve required, or are not employed. Usually … not always … there is a loan for anyone who wants one.
Buying, my friend, is always better to Renting. There is no question about it !!