Credit - Can you buy a home now?

(Originally posted on May 15, 2007)

What's in your wallet?

I don't know about the rest of the country, but in Las Vegas it seems there's no such thing as a savings account. Maybe that's the American way, spend everything you make and then some. That's fine for awhile, but when you realize you want to achieve the American dream of homeownership, you've got trouble.

With the meltdown of the sub-prime lending market, the word on the street is that unless you have great credit, you can't get a loan. Fortunately, that just isn't true. Lenders are still offering different programs to help first-time homebuyers, including 100% financing, allowing gifts from family members towards your down payment, consideration for some collections, and even loans for folks with FICO scores as low as 500. The interest rates aren't the most attractive, but that's understandable considering the risk the lender is taking.

Time is of the essence

It's no secret we're in a buyer's market. This means that prices have dropped dramatically, and in fact, there are lots of great homes available at or below 2005 prices. If you are considering purchasing a home, don't assume you can't get a loan. If you earn tips, haven't been on the job for 2 years, have collections - you can still qualify. The important part is to apply. Once you know your challenges, you can start to fix them or even buy now.

Ch-ch-ch-ch-choices

No one will argue that renting is just paying someone else's mortgage. There is a way to get into a home with little down now, a slightly higher monthly payment, and a nice credit towards your downpayment in a year. This is called a lease/purchase option.

With a lease/purchase, you first get pre-qualified for a loan. If the lender says you have issues to overcome, but that you can purchase in about a year, a lease/purchase may be right for you. The lender will tell you how much payment you qualify for based on your income and debts. They will also tell you how much the maximum purchase price of your home should be. Once this is determined, you need to work with a Realtor to show you properties where the owner is flexible to sell as a lease/purchase.

Let's say you find a beautiful condo for $140,000. There are three steps in the process. First you negotiate your best price. Once accepted, you sign a purchase agreement, lease agreement and option agreement. The purchase agreement says you're going to buy the house for a pre-determined amount. The lease agreement says that you're going to rent the home for $XX for one year. The option agreement says you're going to give the seller a few thousand dollars to offer you an option to buy the home. It also says that a portion of your monthly rent will go towards your downpayment at the end of the lease. The bottom line is that you now have one year to fix any issues that are stopping you from buying, save money towards your down payment (through your rent payments) and you've locked in a low price.

At the end of one year, your credit should be improved, you will have money saved towards your down payment, and you're already in your home. This is a very attractive option, and more and more sellers are offering this to potential buyers.

Knowledge is power

Don't assume you can't buy because of what you've heard has happened to other people. Everyone's issues are different, and you need to find out how you can buy a home for yourself. It's very important to know what your credit report says. You don't want to delay buying the home of your dreams if there's an issue you need to clear up first. Once a year, everyone can get a copy of their credit report from all three credit bureaus. It's as easy as going to a website. In fact, here's the link:

https://www.annualcreditreport.com/cra/index.jsp

If you find any discrepancies, you'll be able to dispute them right away, and this can save you a lot of time when you're ready to buy.

The bottom line

As a buyer, it's important to work with a Realtor. First, it costs you nothing, as the Realtor is compensated by the seller. Second, we have the experience to help make the largest purchase of your life a smooth transaction, with minimum stress and hassle.

The pendulum has swung and now it's the buyer's turn to make homeownership a reality. Start your search today.