Rent cycles can be a difficult thing to break. This s considering that the price of homeownership has been going up each year. This leaves the average American families with the home rentals option. This is because renting a home saves families the money that would be used to pay the down payment. In addition, the price of the home they would be saving to buy is going up constantly.
However, homeownership comes with its perks. Among the advantages of owning a home include equity-building opportunities. Further, homeownership comes with tax advantages as the homeowners save through mortgage interest deduction and capital gains exclusion. So, how can renters who are facing rising home prices and other obligations make the leap of homeownership? In this post, we feature some important options for renters who are looking to break the rent cycles.
1. Consider Home Loans with Low Down Payment
For many families living in rentals, down payment is a major barrier to homeownership. To get out of the rent cycles, affected families can sign up for low to zero down payment home mortgages. The low to zero down payment mortgage is the silver bullet solution providing a faster way to move from renting a home to owning a home.
However, low and zero down payment home mortgages may come with a high PMI and higher interest rate depending on the lender or the mortgage broker. However, note that the no down payment home mortgages are only available to select individuals. The borrow is expected to show they have an adequate income required to repay the loan, and that they meet the credit score requirements
The low / no down payment home mortgages include
- VA home loan-(0% down payment)
- USDA home loan-(0% down payment)
- FHA home loan (3.5% down payment)
- HomeReady™ Mortgage (3% down)
- Conventional Loan 97 (3% down)
Thus, if high down payment requirements keep you from buying a home, consider either of the home mortgage options. Check the requirements and apply if you qualify.
2. Home Mortgage Options for Borrowers with Low Credit Score
Apart from down payments, another common barrier to homeownership is high credit score requirements. The conventional home loans require that borrowers have a high credit score. Given that majority of the first time homebuyers are also processing student loans, it becomes hard to meet the requirements. This is because they are still earning low income, which is split between basic requirements, and paying student loans. Thus, they are likely to fall behind with rent payments or students loan, affecting the overall credit score.
In such a case, the first time homebuyer mortgage with a low credit score becomes a viable option. So, what are the different home mortgage options for borrowers with low or bad credit score? Here are viable options to consider:
- FHA home loans: any credit score below 580 requires a 10 percent down payment
- VA home loans do not impose a minimum credit score
- USDA home loans require FICO score of 640 although some go as low as 580
- Conventional home loans requiring higher rates and fee for lower credit score
- Fannie Mae HomeReady™ allowing lower credit score
The low credit score mortgages may come with a high-interest rate, PMI, or a higher down payment. This is to cushion the mortgage lender from defaulters. Thus, it is advisable that borrowers speak to mortgage brokers to find out whether they qualify.
3. Talk to an Experienced Pro
If you are planning to purchase a home for the first time, chances are that you may be feeling lost, and need some advice. Buying a home is an overwhelming undertaking, and potential buyers give up even before they begin the process. Some of the first time homebuyers qualify for a conventional home mortgage, but the fear of the unknown keeps them away. Thus, they end up stuck in rent cycles. A qualified expert can help you through the different stages of homeownership. This makes the journey of homeownership easier than you think. Thus, identify a seasoned expert and ask them to help you through the homeownership process.
4. Start Saving Now
There are some good reasons for setting aside some savings to pay the mortgage down payment. For instance, if a low or bad credit score is keeping you from buying a home, paying a high down payment helps. A 20% down payment on an FHA home mortgage allows you to borrow even if the credit score is below 580.
5. Start Getting Your Credit Score into shape
You have total control over your credit score. being an important piece when it comes to buying a home, it is advisable that you check the credit score and get it back into shape. Check whether there are wrong entries affecting your credit score. Moreover, pay any outstanding debts that could be affecting your credit score. Building the credit score can take more time than you think. The earlier you start the better.
Key Takeaway
You have total control over your credit score. being an important piece when it comes to buying a home, it is advisable that you check the credit score and get it back into shape. Check whether there are wrong entries affecting your credit score. Moreover, pay any outstanding debts that could be affecting your credit score. Building the credit score can take more time than you think. The earlier you start the better.
