Ways To Convert From Renter? (loan, interest rate, credit card, upfront)

[NoMoreRent]

Greetings,

I'm excited to have found this forum, and just spent the last hour reading all kinds of informative posts. I'm really hoping someone can help me out here...

I apologize in advance for being wordy, but I want to make sure my situation is fully understood.

I'm a 32 year old entrepreneur who has been renting his entire adult life. My credit is bad, but improving by the week (literally). In July of 2009 I moved into a gorgeous newer home in Las Vegas that had been empty for several years. The owners bought it NEW in 2004, lived in it for less than a year, and it sat vacant until I arrived. It was on the market for at least a year, but never sold. My monthly rent is $1795 and I see their purchase price in 2004 was $290,000.

In the past, the discussions I've had some with lending folks is that even with my credit cleaned up, getting a loan is going to be very hard for me, or I'm going to pay a nasty interest rate because of my employment status. My income fluctuates from time to time, which scares people. However, the history is that I've always had a place to live. I've never skipped out on a lease, never missed a payment, never. EVER. I've got a wife and four kids, the rent payment has always been first. Over the course of time, my income situation has improved - and so has my rent scale. $1100 a month back in 2005, $1475 in 2007, $1795 in 2009, etc.

Real quick on my credit. In my younger years I had not yet learned the value of paying cash for what you want and need, and ran up several personal loans and credit cards before one of my income "dips." But, over the past 18 months I've paid off three collections accounts, completely paid off my car ($17k paid off in 8 months) and am steadily working on 3 or 4 other collections accounts. But, once those are all gone, I'm left with three or four small credit cards (all under $2500 limit) and thats it. I'll be one of those "no credit" vs. bad credit guys. I have the income now, and the ability, that within 3 or 4 more months there will be zero unpaid collections or chargeoffs. Everything will be paid.

So here's my situation... we'd love to buy this home we're in now. Its perfect for us, and with one minor adjustment to a wall, its very close to what we'd design for ourselves if we were building... so hey, we want it.

I would easily be able to put down $10k or $15k today and would hope to work out some kind of rent to own option, or some kind of seller financing deal. The homeowner does NOT own the house outright, though, so I don't mean seller financing in the literal sense.

How would I approach trying to convert the rental into a situation where I can own this home, knowing that traditional financing is not easy for me to get. My concern with the standard rent to own model is that at the end of some time period, if I'm still not able to finance the home's purchase, I could be out in the cold. Would it be a mistake to put $10k in the homeowner's hands and try to work something out? Is there something else I should try to do? Would SOMEONE finance me if I could get $20k or $30k down, despite my income situation??

Any thoughts and ideas are totally appreciated and I look forward to hearing from you.

[Lacerta]

First off, good for you for making good on outstanding debts. In my book, that puts you in the "good guy" category.

Unfortunately, the fact that those debts were in collections still puts your credit in the "bad credit" category. The fact that they are now paid off does not, in the eyes of a lender, move you into the "no credit" category. At least not until those items are removed from your credit report.

Do you have items on your credit report that are "good credit" items? That is, credit that you pain on regularly, on time. If not, I would suggest getting something. If you are now capable of being responsible with credit, get a credit card, and buy your groceries with it every week, then pay it off every month. Or something. Do something to SHOW that you can handle credit responsibly. Does your wife have a job? Could one of you get a job that pays regular income (even as a second job for you)?

On to the question of the house. My biggest question is WHY are you wanting to do a rent to own? If it is to make sure that the owner doesn't sell the house out from under you, I would discuss with them putting a clause in the lease that if they decide to sell, you have the first option to buy. I would also discuss with them the possible options for a lease/purchase or lease/option (two different things). Sometimes, the fair thing is for you to put a nonrefundable amount down up front. Sometimes it makes more sense to charge over market rate, with some going toward your future down payment. Sometimes it is a combination of those. In most cases, if you aren't able to close at the end of the time frame, you lose whatever extra you paid in to the owner. So it would be more in your interest to sign as long a lease as the owner will allow, save your money and improve your credit until you can buy.

Right now, it is really hard to get a loan if you don't fit ALL the criteria the lenders are looking for. At some point, it is likely the pendulum will swing back toward middle ground, where they actually look at a person's overall situation to make the decisions. At that point, you should be able to get a loan if you have established some good credit, and show reported income to the IRS, and have a hefty down payment saved up.

[thndrcloud]

Is your rental history on your credit report? Do you have bills that you have paid on time over many years (gas, electric, etc) that aren't reported? You can call and request that your landlord or utility companies submit your stellar payment history to the credit agencies. The more positive marks you have on your report the better it looks. It probably won't have as much weight as the negative stuff from your credit cards and collections, but may help offset those a little.

[NoMoreRent]

Lacerta,

Thaks for the reply. Yes I have a few good credit lines.... I don't think I articulated that well enough. I have two normal credit cards and two store cards all reporting with perfect payment history. I use my HSBC MasterCard two or three times a month just to have some activity, then pay it off at the end of the month. I just decided to open a Bank of America secured card this week, and that will report soon. I'm starting with a $1k deposit (thus a $1k reported limit) but will work to increase that. BofA said I can make a deposit into the security account, in increments of $100, up to two times per month.

I'm working with an attorney to remove the closed/paid accounts from my report, so over time I'm hoping to whittle several of them away. I believe you're exactly right that as closed/paid account is still negative, just not as negative as "he still owes us this much" -- so my attorney is going to try to work some magic. So far, he's been able to remove one.

As to WHY I'd wanna do rent-to-own, I guess my answer is in two parts. First, I'm not married to that particular method. Second answer would be that I just feel I need to be doing something where my dollars are accomplishing something each month, one way or the other. I of course would hate to have the house sold out from under me, both because a move is expensive and also because I would just have to start all over again, renting and paying off some other guy's mortgage. My fear though, which you touched on, is that putting some money upfront, or doing a solid program for two years or something might or might not put me in a position to qualify to purchase the home. If that were the case, it'd almost be more lucrative for the homeowner to evict me at that point, and just keep on renting. Scary thoughts.

thndrcloud.... no, my rental history nor any of my regular bills report on my credit reports. I'll look into getting some of my past rentals on there... that would be truly awesome.

[Nestlequik]

Look up this program called NACA. Great for people in your situation. Hurry and clear what you still have in collections and in 8-12 months they can have you in a home. Good luck.