You went to the bank with high hopes of getting a loan, only to be shot down due to your credit. You are devastated until you talk with the seller of the property, and they offer a rent-to-own contract. It’s your lucky day!
Why is rent-to-own good for you? Not only do you get to stay in the house you wanted, but you also get the chance to enhance your financial situation without any pressure. Let us help you understand more about how to use a rent-to-own situation in your life.
Understanding the Technicalities
What exactly is rent-to-own? It’s similar to buying a car after leasing it. You paid for it monthly, knowing you could give it back when the lease is over with no drawbacks. A rent-to-own situation is similar; you pay a monthly rental payment, but it goes toward the purchase price of the house.
So, you get to stay in a home you potentially want to buy, but the seller cannot sell it from underneath you. You typically have no more than three years to get your affairs in order, and decide if you are going to purchase.
Getting Things Cleaned Up
Now that you have a place to live, you can start cleaning up your credit. Get a clear picture of the work ahead of you by getting a copy of your report. Start by getting rid of inaccuracies. This isn’t always easy, but it must be done.
Then, decide where to go with your credit and debt situation. Make sure you have enough credit lines open, but don’t owe a ton of money on them – keep your debt utilization ratio low. You have to be lower than 30% to please lenders.
Never, under any circumstances, should you try to open more credit lines. It’s will look sketchy to the bank. Also, do not begin moving money or assets around. Your lender will think you are hiding something.
Do you think you need to close some of your credit lines? It’s okay to close a few, but keep the oldest ones and shut down newer ones. That’s how you establish a worthy credit history.
Get Some Cash
Save, save, and save some more. Save everything you can while renting, so you can proudly deliver an upfront down payment with your loan. Pay your bills, save a small amount for entertainment needs, and put the rest away.
Now is a great time to journal, so you get a better idea of where your money is going. After seeing it on paper, you may be shocked about the cash you waste on frivolous things. Cut out what you can, and put the rest in a savings account.
What to Walk Away With
Before giving up on owning a home, look for rent-to-own options. If you find one, you’re golden. Make sure you take advantage of it! Save, organize, and prepare for buying your own home when the time is right.
Have you purchased a home on a rent-to-own contract? Let us know how it went in the comments below. If you want more information on how the process works, contact our experts.