What To Do When The Bank Says No

What Are Your Choices?

If you have been looking to purchase a home and you have run into qualification issues there are other options to consider. The lending environment has drastically tightened and we are back to more rigid qualifying guidelines. So what are your choices for housing? The answers may be obvious but let's take a closer look at the pros and cons of your choices. Your Choices Are To Rent, or Rent-To-Own

Renting Pros:
1) Fewer qualification requirements. Although there are certain qualifications necessary to rent the guidelines are more forgiving. If you do have poor credit chances are you will have an opportunity to explain the circumstances of your credit.
2) You may get more house for your buck. Especially in California and other coastal locations, you can rent a home for significantly less than it would cost to own it.
3) Less money down. Most of the time you only need first and last months rent plus deposit to move in.
4) Renting gives you time and extra money to strengthen your credit score and save toward a down payment.

Renting Cons:
1) Your monthly rent is not going toward any asset. After you're done renting, you have nothing to show for it.
2) Landlords have the power to increase you rent.
3) If you like the house you likely will not be able to ever purchase it.

Rent-To-Own

Not all Rent To Owns are created equal. You want to make sure you really have a chance at owning before you enter into the deal. Make sure you know what parts of your borrowing power you will have to work on to get qualified to purchase. Otherwise the chances of owning the home are greatly reduced. Read our article "A Complete Guide To Mortgages: Solving The Borrowing Power Puzzle" to find out more.

Rent To Own Pros:
1) You have an ownership interest in the property you are renting. This is accomplished through an Option to Purchase.
2) Your down payment is going toward the purchase of an asset.
3) Your monthly rent may include credits toward the purchase. If so, you will be accumulating down payment funds with each rent payment.
4) You can strengthen your borrowing power (credit, down payment, etc) while you are living in the house you will eventually own.
) You are signing an Option to Purchase at today's market value. There is a good chance the home will increase in value entering into an Option to Purchase now may save you thousands down the road.

Rent To Own Cons:
1) The down payment may be a tad bit more than renting and it is usually non-refundable. It's not a security deposit.
2) If you are not well aware of your borrowing power profile, you will likely not be able to get the mortgage. Make sure you know all the facts of your credit.

Home ownership is a worthwhile pursuit. In today's environment you will need your borrowing power to be very strong. If the bank has said no, you need to understand why. Use the rental period as a time dedicated to getting the bank to say yes.

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