How to Buy a Home When the Bank Says, "No!"

So, you are in the market for a home for you and your family, but you have some credit challenges, and the bank has turned down your mortgage application. Cheer up. It is not the end of the world. There are several options for you to consider.

Banks often decline mortgage application for three main reasons:
1. The borrower has a blemish in their credit history;
2. The borrower is self-employed, and banks often interpret that as meaning “unemployed”;
3. The borrower has no verifiable credit history, as would be the case with a new immigrant.

The most common way to buy a home if you fall into one of these three categories is through a Rent To Own program, sometimes called Lease Options, or Lease To Own. In a very few words, if you qualify for the Rent To Own program, your rent a home, often of your choosing, for a fixed term, and having an option to buy it for a previously established price at the end of the term. A portion of your monthly rent and a down payment (called the Option Fee) get contributed to the purchase price.

Over the term of the lease, the Tenant-Buyer is able to establish a good payment history, and to build up a large enough down payment that banks will often lend the money to the Borrower when the lease term expires.

The money would look something like this, as an example only:

Purchase Price $ 300,000

Option Fee 9,000

Rent (24 mo @ $2300) 28,800
Monthly Credit (24 @ 550) 13,200
Net rent 15,600

Total Purchase Contributions 22,200

Percentage of Accumated DP 7.4%

The Net Rent is the Total Rent minus the Monthly Purchase Credit. The Total Purchase Contribution equals the Option Fee (down payment paid on signing the lease) plus the total Monthly Credits. In this scenario, it is 7.4% of the Purchase Price, large enough to most lenders to lend the money to buy the home.

It is important for those considering buying a home whether through regular means, or by Rent To Own, that they need to qualify for the mortgage. A Rent To Own company will do its diligence on the applicant in the same way a bank does, but the rules a less onerous. However, the applicant must be able to afford to buy the home at the end of the day.
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Being an Option to Purchase, the Tenant-Buyer is not obligated to buy at the end of the term of the lease. There is another way to purchase a property when banks would not normally loan to the borrower. It is called an Agreement For Sale.

In many ways, it works just like the Option, except that it is a contract to buy the property when all conditions in the contract have been met. The numbers above would be identical in an Agreement For Sale. The big difference is that the Tenant-Buyer is obligated to buy when the contract reaches its maturity date.

If you would like more information about how you might buy a home using either of these two programs, visit our website: http://www.RentToOwnItNow.com