Is it possible to buy with poor credit or better to do rent to own or land contract?

Asked by Ravenlyn6996, Louisville, KY Thu Mar 28, 2013

We've rented an apartment for 3 years and we have decided we want a house. Good rental history and work history. Bout 2 grand saved. Would like a house in Lyndon, middletown, germantown, clifton, fairdale or Jtown areas. Needs to be over 1000 square feet and a fenced yard. Would really like a sunroom as well. We have a cat and siberian husky. Our lease is up in may.

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Rita A. Walk…, Agent, Louisville, KY
Thu Mar 28, 2013
Do yourself a favor .... Sit down with a good Loan Officer and let them review your finances.
Sometimes credit is just not as bad as you believe it to be.
If you have problems the loan officer can suggest a plan and a time frame for you to make a purchase.

The best way to buy is a direct purchase. If you try to take an alternative method you end up paying more for the property than you would have otherwise or get something that no one else wanted.

If you would like some recommendations for Lenders, I would be happy to help.
Just email, call or text.

Good Luck to you,

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Neil Blumberg, Agent, Louisville, KY
Thu Mar 28, 2013
I suppose it depends on what you mean by "poor" credit.

Factors considered by lenders when making a loan are:
Income stability, assets and available cash, property appraisal, current debts and credit history, debt-to-income ratio (your monthly mortgage payment -piti- plus your other monthly debt obligations must not exceed around 36% of your gross (pre-tax) monthly income) and lastly housing-expense-to-income ratio (your monthly mortgage payment must not exceed around 28% of your gross monthly income).

These percentages vary, but the numbers given above are a good rule of thumb.

As you see, all but one of the above issues (appraisal) relate to the borrower. It is close to impossible to get a loan from a reputable lender at market rate when you do not fit into the conventional/FHA/VA guidelines for these factors because loans are often bundled and sold and only loans meeting these guidelines may be bundled with other like-loans.

Your avenue for a loan then narrows significantly: (1) small local banks or credit unions may lend you their own money (I recently helped a couple of borrowers find this type of lender) (2) hard money loans, limited by the SAFE Act (3) owner financing, including mortgage, contract for deed, lease option.

It is without doubt best for you to look at option (1) above. Failing that options 2 and 3 have certain dangers which you need to understand. Should you wish me to go through these options with you, give me a call at 502-254-9600.

Below is part of an (as yet unedited) article I'm about to publish on creative finance. This part relates to the SAFE Act.

Hard Money Loans and Private Mortgages
Prior to 2008 anyone with a few thousand dollars and a bucket of paint to make a sign saying "Loans Here" could be in the mortgage business and make "hard money loans" (high interest loans, often under draconian terms).Then came the housing bubble bust and with it the pendulum swung the other way in the form of the Federal Secure and Fair Enforcement for Mortgage Licensing Act, commonly referred to as the SAFE Act. Kentucky enacted its own version of the SAFE ACT in 2009, under which any lending secured by real estate became virtually impossible unless one was a licensed mortgage broker or bank. The 2 minor exceptions made were to allow an individual lender to make a private loan to (1) an immediate family member and (2) to any person buying the seller / lender's own primary residence.

Then in early 2011, a third exception was promulgated: the Kentucky Department of Financial Institutions announced that investor buyers would no longer be subject to the terms of the SAFE Act. This was extremely important to the real estate investor community who would regularly use hard money loans to finance the purchase and renovation of, for example, quick flips homes or who are following other strategies requiring money fast without a lot of bureaucratic paperwork. Even though the interest rate is high, they use the money for only a short time (1 day to 3 years), so the actual amount of interest paid is relatively small and thus not cost prohibitive.

In late 2012 a 4th exception to the SAFE Act was introduced according to which certain private entities such as individuals, partnerships, LLCs, C Corps, S Corps, land trusts etc, are allowed to make up to four mortgage loans within a 12 month period provided they do not intend to resell the loan to a third party and that the lender does not publicize itself as being a mortgage lender. Various other restrictions apply including compelling the lender to make certain disclosures to the borrower and to safe keep certain records.

The net effect of these 4 exceptions is that, though we are not yet back to the IBG YBG hey days of the housing bubble, we have reached a point where hard money lending can again play an important but restricted role in the housing industry. But for the most part, incautious borrowers with poor credit scores, bankruptcies, foreclosures, deeds in lieu, no verifiable or too little income, or too much debt will be protected from unscrupulous hard money savages who may have ripped them off.
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Joseph Roraff, Agent, Onalaska, WI
Thu Mar 28, 2013
There are a couple things you need to know. What's your actual credit score? I would recommend you rent and do some credit repair. Talk to a mortgage lender and they can get you started and let you know what you need to do.
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Jacques Ambr…, Agent, Forest Hills, NY
Thu Mar 28, 2013
Talk to a mortgage professional to see what your options are. If your credit is too low they may help you get your credit repaired. Then talk too a local real estate agent tot see if there are any properties that would work
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Anna M Brocco, Agent, Williston Park, NY
Thu Mar 28, 2013
Keep in mind that rent to own can be risky and one could stand to lose a bit of money, therefore do inform yourself well, and consider consulting with an attorney who specializes in real estate beforehand. If you haven't done so yet, visit with any licensed loan officer, see if you can buy outright...
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Jennifer Aus…, Agent, Louisville, KY
Thu Mar 28, 2013
There could be options available for you. There are a lot of variable factors to consider. I spoke with a mortgage broker yesterday who was able to finance a home for someone with a 620 credit score. You could also consider a lease option for a couple years while you work on bettering your credit.
I am happy to help. Feel free to contact me.
Thank you,
Jennifer Austin, Realtor
502-807-2560 Cell/Text
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Josh Barnett, Agent, Chandler, OK
Thu Mar 28, 2013
Just rent for a year and then sit down with a loan officer and see if you are where you need to be.

Best of Luck
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