Being unable to qualify for a traditional mortgage can be frustrating and stressful. Saving for a down payment while renting is particularly challenging, especially if you have other high expenses such as healthcare, car payments, or childcare costs to worry about. Bad credit is a primary reason for financial institutions to disqualify many prospective lenders. Additionally, even Federal Housing Authority (FHA) loans typically require at least 3.5 percent of the total cost of the home as a down payment.
Rent to own housing is an ideal path to home ownership. While you’re paying your landlord in your rent to own housing arrangement, you can also focus on credit repair, which will allow you to access alternative loans in and out of the housing space if necessary. These traditional loans will bring with them a lower interest rate if your credit score raises over time.
Rent to own housing is also a great way to buy you time if you find this type of arrangement and want to commit to purchasing the home. As you improve your bad credit and eventually become debt free, you may find a way to acquire a traditional loan and make a buy out offer on your home. If not, however, the rent to own arrangement ensures you have a roof over your head and an option to buy your rental home at the end of the rent to own housing process.
If you’re focusing on credit repair with home ownership as a goal, a rent to own housing agreement may be ideal for you. Ensure that there is a buyout clause in the agreement, though, so you are able to buy the home at set terms should you find yourself able to acquire a traditional mortgage from a bank while you are only partway through the rent to own payment process. This will usually ensure a lower monthly payment, though it depends upon your rent to own housing agreement and the terms of the prospective mortgage.
Operating with the motive of home ownership in a rent to own housing arrangement can leave you with a useful buyout option, but you still have a route to home ownership if you fail to fix your bad credit and become debt free.
