Boost Your Credit & Your Monthly Mortgage Payment
Some people are under the mistaken impression that you must have good (or even great) credit in order to buy a house. That’s truly not the case — there are plenty of opportunities for people with poor credit to start on the journey toward homeownership and end with a set of keys to their very own home in their hands. But it’s true that buying a house with bad credit can be a challenge that not everybody is equipped to face. If your credit isn’t exactly shiny and pristine, there’s still hope for your dream of owning your own house. Assess your situation, do what you can to improve it, and you’ll be working on the fun part of home buying (the shopping part) before you know it. Face the music Maybe you don’t know your exact credit score or what’s on your report ... you just know it’s, you know, not great. That’s perfectly understandable and nobody is judging you for shrinking from the truth a little bit, but the first step toward fixing the problem of a poor credit score is understanding exactly how bad the situation is so that you can start addressing the low-hanging fruit and easy-to-tackle issues first. So if you don’t know what your credit score is or have access to what’s on it, now is the time to procure a copy of your credit report, which you can request for free. You might be nervous about what’s on the report, and that’s entirely natural, but refusing to look at it isn’t going to solve any problems — so if it helps, just tell yourself that your score is as low as it could possibly be and you owe millions of dollars on your credit report. Maybe that’s true, but if your situation is even a little bit better, you’ll feel pleasantly surprised! Check for errors Believe it or not, there are mistakes on credit reports just like any other document, and if you haven’t been paying attention, then you might find some on your report. Getting mistakes removed can feel tedious and time-consuming (and, let’s face it, it is), but you’ll be improving your credit without having to spend any money doing it, and that can be a solid payoff all on its own. Take that copy of your credit report and run down it line by line to see if you can find anything that’s worth disputing. Obviously, larger line items are going to be worth more time than smaller ones, but everything that doesn’t belong on your report is worth disputing. It might take some untangling to get there, but it’s going to make a difference in the end on how quickly and easily you get in the door of a home of your own. Do what you can to improve where you can You can still buy a house even if your credit isn’t perfect or very good — and we’ll get to the specifics of how in a minute. But the fact of the matter is that you’re going to get the very best deal on your mortgage loan if your credit is in decent shape. That’s important because it affects how much money you’re going to pay overtime on the house; the lower your mortgage rate, the less you’ll pay, and you won’t be able to get a low rate with poor credit. So instead of throwing your hands up and accepting your fate, start looking for ways to improve your credit score right now. First and foremost, if there are any bills you can pay automatically, sign up to do so; late payments will wreak havoc on your credit score. Once you’re paying all your current bills regularly and on time, start tackling the highest-interest debts first. If you’re in default, see if you can set up a payment plan with whichever entity now owns the debt; that may take some investigating to figure out. But any efforts you can make to improve your financial situation and your credit now will benefit you later when you’re actively looking for a house. Meet with a housing counselor and take classes The Department of Housing and Urban Development offers resources for buyers (especially first-time buyers) who are struggling with credit issues and affordability. It’s well worth checking out because they can often direct you to additional resources (even grants and loans for down payments) that could make all the difference in your ability to reach the finish line. Visit https://www.hud.gov/buying/localbuying to see if HUD offers any programs in your area. Know your loan options There are a few different types of loans that are specifically geared toward buyers with poor credit or financial struggles, including FHA loans, USDA loans, or VA loans. If you’re a veteran, then it’s a good idea to contact the Veterans Administration and ask for information about VA loans, which require a credit score of 620 and often offer very good rates even for borrowers with credit challenges, and you can get a loan with no down payment at all and with no private mortgage insurance (PMI) penalties. If you have a credit score of at least 580, then you can qualify for an FHA loan, which is a loan with a lot of flexibility — it’s not restricted to first-time homebuyers, for example, and the loan requires just a 3.5% down payment (although if you can put more down, you’ll get better terms. Employment qualifications for an FHA loan can also be looser. A USDA loan is available only in some rural areas for some borrowers who have a low-income range for the area. These also require a credit score of 620 and don’t require a down payment or PMI, so depending on your income and where you’re buying, they can be a good option for some borrowers. Private mortgage loans are also available even to borrowers with poor credit, but you may need to make one or more of the concessions listed below. Pay upon PMI If you don’t have a full 20% down to bring to the sale, it’s standard procedure for the lender to charge an additional mortgage insurance every month on top of your payment. This is usually calculated as a percentage of the total loan; it can be well worth it for buyers to pay PMI if it means building equity and working up the homeownership ladder. Offer a bigger down payment Alternatively, if you have poor credit but you happen to have good access to a lot of money, then it might make sense for you to offer a larger-than-average down payment to offset your lack of credit. Some lenders will accept a riskier borrower with more skin in the game, so to speak, so it’s worth a shot if you’re able to come up with those large amounts of money before your home purchase. Bring a co-signer to the table Borrowers whose credit isn’t good enough to get a loan on their own also have the option of bringing a co-signer to the table who can also be financially responsible for the loan. This is a big deal, and most co-signers will be family members — all of the normal advice about entangling yourself financially with family members applies even more stringently here, but if there are no other options, bringing a co-signer in can get a deal to close that was otherwise lost for good. Be realistic about your price range It’s incredibly important for homebuyers who are more financially challenged than they would prefer to be ultra-realistic about the budget they can afford and how they plan to pay for it. The last thing you want on your credit report is a foreclosure, and the best way to avoid one is to make sure you’re not getting in over your head in the first place by shopping aggressively within your price range and aiming low if at all possible. You aren’t obligated to stay in the home you buy with poor credit forever; it can be a jumping-off point to something better, but you have to get your foot in the door first, which might mean compromising here and there. Refinance when you’re settled Homeownership can help boost your credit in a big way; that financial stability and equity building will only benefit you over time. And after some time, you can take advantage of your newly polished credit to refinance. Depending on what mortgage rates are doing, you might even spend less money every month on your mortgage, be able to get rid of your PMI, or otherwise tweak your payment to your best advantage. There’s no reason why you can’t buy a house with poor credit. It just is going to require a little extra work and planning on your part, but the end result — a home of your own — will be worth all the sweat and tears you put into it.
Shopping for Vacation Rental
Planning to stay in a hotel for your vacation is so '90s. The emergence of the internet and websites like Airbnb, VRBO, TripAdvisor and more have made it possible for travelers to feel right at home in a new city ... because they're staying in someone else's home and renting it for vacation. Vacation rentals are a great way to get to know an area like the locals do. They're often more spacious than hotel rooms, and unless you're booking a hotel suite, you'll also typically have access to amenities like a full kitchen. Of course, there's always a risk to using a vacation rental instead of a hotel -- for example, some rentals might not have internet access, some might be inconveniently located for what you want to do, and there are people posting homes that aren't really theirs and taking money as part of a scam. (This is much more popular on open websites like Craigslist than targeted ones like Airbnb, for what it's worth.) How do you make sure that you're choosing the right spot for your vacation experience? Here's a quick guide to how to find the right vacation rental for your visit. Decide where you're going Maybe you want to ski in Tahoe or sun yourself on Miami Beach. Before you can start seriously looking at vacation homes to rent, it's smart to decide where you want to go for a vacation and what you want to see and do while you're there. This seems easy, but most of us have several places we'd like to go given enough time and money. The key is in prioritization -- and consulting your fellow vacationers, of course. Make a list of any places you wanted to go that didn't make the cut and save it for the next vacation. Decide what you want in a rental Sometimes you can find a great deal on a vacation rental that will save you hundreds of dollars on your vacation ... but that rental might be located miles and miles from any major attractions, meaning you'll either have to rent a car, take public transportation (if available), or take on another expense to get where you want to go.By contrast, a place right on the slopes (or the shore) might be more expensive than the other options, but you're paying in part for convenience. Is that something you're willing to do? Make another list of the features you must have in your vacation rental, from location to a number of beds to whether you need an internet connection. Think about how much cooking (or not) you'll want to do, whether you want to be close to restaurants or public transportation -- in other words, make a list of your ideal vacation rental for this trip. One nice thing about platforms like Airbnb and VRBO.com is the filter application; you can include your must-haves and the search results will only generate vacation rentals that meet your exact criteria. So it pays to decide what those criteria are before you jump into the search. Plan ahead If you haven't already selected dates for your trip, start checking to see what the busy and slow times of year (or season) are for the area where you want to vacation. Maybe you want to hit a big event that's going to be insanely popular. In that case, start planning as early as possible, and book your rental as early as you can, too -- the rates will only get higher if you wait. If it doesn't really matter when you go, try to plan around any big events that could boost prices while you're in town to find the best deal possible. Google Map it Once you start looking at actual homes, do yourself a favor and check out the neighborhoods and streets where those homes are located. You might find something that's lovely and impeccable on the inside, but if the general feel of the area doesn't seem safe or polished to you, then maybe you should pass. Pay attention to major thoroughfares and attractions, too, so that you know there's a highway behind the home that might keep you up at night or a concert hall that might be a little loud down the street. The maps can also show you quickly which retail stores and restaurants are nearby, where the vacation rental is in regard to public transportation, whether the sidewalks are clean and well-maintained or trash-ridden and cracking -- you can learn a lot from this step, so don't skip it. Read the reviews Airbnb, VRBO.com, and other reputable vacation rental sites will have a review section -- don't ignore it. Those reviews are written by other vacationers who stayed in the home. They often report on things like cleanliness, noise levels, whether the photos were representative of the home -- all things you'll absolutely want to know before you fork over money for a week in the place. You can also see (to an extent) who left the reviews, how often they travel, how highly their own hosts rate them (a bad review from a poorly rated guest can probably be safely ignored), and then decide from there how valid you think their opinion is (or is not). Ask about amenities Is there wifi in the vacation rental? That might be something you can filter out with search results, but other questions might not have handy answers -- like, "do you make towels available for beach use," "can I park in the garage," and "is there a Nespresso machine in the kitchen." Look at your list of must-have criteria and ask yourself if you can confirm that the vacation rental has (or does not have) the items on that list. If there are any missing, ask the host about them. It's possible that accommodations could be made, but you'll never know unless you ask! Ask about fees Will your host charge for additional guests, and what's the standard nightly cleaning fee? Can you access the vacation rental's pool, or does that cost extra? When you're close to deciding that this is the right place for you, contact the host (if you haven't already) and ask about any additional fees or costs associated with staying there. Not only will this help you budget, but getting an answer in writing can also protect you from any unknown charges if the host is an unscrupulous sort. Better safe than sorry. Solicit suggestions for things to do Most good hosts will do this without asking, but it's always nice to ask the people who own the home (and have presumably lived in it) for tips on things to do and how to make the most of your time in the area. Some good questions to ask hosts if you can't think of any yourself: What's your favorite place to eat in the area? What route do you talk about when you want to take a walk? Where do you go when you want some quiet time outside of the house? Where do you go when you want to meet new people? Where can you find the best live music in the neighborhood? What's the parking situation like? (If you have a car.) What activities for kids or families are available? Is there anything I should know about the neighbors? When you take the time to plan ahead, finding (and renting) a vacation home, even if for the first time, is both easy and rewarding.
Is Rent-to-Own Ever Worth It?
Rent-to-own agreements have a bad reputation in the real estate industry, but is it deserved? Well, it depends. There are many different kinds of rent-to-own agreements, and each one can be modified and customized for the tenant and the landlord. Many rent-to-own agreements overwhelmingly favor the would-be seller of the property, the landlord, which is one reason why they have the reputation they do. What do you need to know about rent-to-own agreements — and could it be worth it for you? The rent-to-own basics In a nutshell, the way rent-to-own works is that tenants agree to pay additional money in rent every month in exchange for the opportunity to buy the house. There are a couple of different ways these agreements can be structured, but they always boil down to above-market-level rent so that the tenant can start building some equity in the home. This can be problematic simply on its surface. For tenants who struggle to save up enough money for a down payment, it might not be at all easy to spend several hundred dollars every month on top of their rent value. On the other hand, tenants who can’t manage to save a down payment might find that this is actually a better option — the money is going somewhere they can’t touch it, and when the time comes to buy the house, it’ll already be there waiting for them. Lease option and lease purchase agreements There are two essential types of rent-to-own agreements, a lease option agreement, and a lease-purchase agreement. Of the two, the lease-purchase agreement is more legally binding: If you sign one of these, you are obligated to buy the house when your tenancy is over. In a lease option agreement, however, you have the option to buy the home when your lease is up — but you are not required to. These agreements will also include details about the home purchase. Sometimes a lease option or lease-purchase agreement will go so far as to state the sales price of the home when the tenant’s lease is up, either based on the home’s current market value or calculated as a projected value. But other agreements specify that the home purchase price will depend on the real estate market when the tenant is actually ready to buy. In both of these lease agreements, the tenant is responsible for securing financing for the home purchase once the lease is up and the tenant is ready to buy. This means that if you sign a rent-to-own agreement and you aren’t able to get a mortgage loan when your lease is up, you may forfeit all of the extra money you paid throughout your tenancy. The cons for buyers There are a few big red flags that buyers should look for in any rent-to-own contract. And if you’re seriously considering buying a home like this, do lots of research on the seller. You don’t want to find yourself at the mercy of a shady person with unethical business practices because you were too excited to own a house to do any due diligence. Buyers will have to pay an additional upfront fee for the opportunity to buy the house at a later date. Often called option money, this money might or might not apply to the equity in your home, and will almost definitely be lost if something happens and the deal falls through. One thing that buyers need to think about is maintenance clauses. In many rent-to-own agreements, buyers are responsible for maintenance and repairs on the home during their tenancy. This might not be a big deal if you have to get a window air conditioning unit fixed, but what if there’s something wrong with your water heater or your sewer main? Or your fuse box? Those repairs can really add up, and you’re still not the owner, so you’re spending your own money to repair a house that you might not ever own. Another clause to keep an eye on is the one that outlines under what conditions the agreement can be broken. Often, if the buyer is late with a single rent payment, they lose all of their investment. And if the landlord isn’t in good financial standing and forecloses on the house, the buyer loses all their money invested then, too. This is why it’s important to research your landlord-seller. If they have a history of taking advantage of buyers, then you can probably find evidence of it. Ask them for references, and do your best to figure out what kind of person you’re doing business with. Lots of people who offer rent-to-own opportunities are ethical humans, but of course, there are always bad apples. And, of course, if something happens with your job or your family, and you have to move out of the area, you’ll have to break the agreement and leave your home (and investment) behind. The pros for buyers Many clauses in a rent-to-own agreement are negotiable, which means you can ask for things, too! You can request that your option money go toward your equity in the home, for example, or for the seller to maintain the big systems in the house while you’re in charge of smaller wear-and-tear items. So one pro is that if you know your rights and you're willing to work with your landlord-seller, you can come up with an agreement that works well for both of you. Another is that for buyers who want to own a home but aren’t quite financially ready, rent-to-own can really help you build equity and set yourself up to buy the house where you’re living in a couple of years. A rent-to-own agreement isn’t for everyone. It can be more expensive than buying a home the traditional way over the long term, and if buyers have the ability to save up a down payment and jump through all the hoops, they will most likely get a better deal on a house that isn’t a rent-to-own. But if you’re in love with the house where you live and it’s worth it to get your foot on the homeownership ladder that much sooner, it might be something you should consider.
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