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Ok so this is my issue-
I am currently living in a rent to own home that I am completely in love with! I pay $608 a month to the property company, every month $450 of the $608 goes towards the purchase price of the house.
The purchase price of the house was 47000 I have paid down to under 40000.
My question is this:
I am pre approved for up to 125000 but the least amount I can take is 75000. but I am thinking about taking the 75000...I know nothing about buying a house and I feel very stupid to even ask but if I take the loan for $75000 and my purchase price is we will say 39000
How does this work?
I
Please help me if anyone can help me understand or lead me in the right direction I will very very grateful!
First there is no such thing as a stupid question. You have a legitimate question that is not obvious.
What you are up against is the fact that at current interest rates and norms of value lenders have a hard time making money on loans that are too small. The lender you have inquired with has set the minimum amount they will lend at $75,000.
If you want to buy a house valued at only $47,000 you are going to need to find a different lender. There are likely some credit unions that may be willing to make a smaller loan.
When you take out a mortgage the lender will NOT make a loan that is larger than the total value of the home -- the way a mortgage works it is a 'secured' loan that the lender makes based on the value of the home. Should you fail to make the payments on the loan the lender would seize the collateral -- they'd foreclose and then they would sell the foreclosed home to recover the value of the loan...
The advantage of a "rent to own" situation for folks with poor credit is that such borrowers likely would not otherwise be able to purchase a home. In your situation the lender has indicated that your credit qualifies you to purchase a home of up to $125,000 -- you may wish to consider that route BUT I would first advise you to review any paperwork from the "property company" that you have paying "rent to own" for the home you live in. It is important that they show you have built up over $7000 of equity by paying down the home. There should be records of this...
It just makes me feel really stupid. And quite honestly I think I get the run around a lot of the time! They did explain to me I could do a construction type loan and use that to make the home more energy efficient, but that's a different loan all together....
It's also just going to be my name on the loan and I don't make as much as my husband does but his score is too low from a few things with his divorce! He just wants me take it and be done with it but I'm sure there is something better then my first offer. I think I'm just very scared because this is such a big purchase and I want to make sure I do it the right way!
It just makes me feel really stupid. And quite honestly I think I get the run around a lot of the time! They did explain to me I could do a construction type loan and use that to make the home more energy efficient, but that's a different loan all together....
It's also just going to be my name on the loan and I don't make as much as my husband does but his score is too low from a few things with his divorce! He just wants me take it and be done with it but I'm sure there is something better then my first offer. I think I'm just very scared because this is such a big purchase and I want to make sure I do it the right way!
Don't try to find a way to spend 75K on a 40K house. Penny wise dollar foolish is exactly what you don't want to be.
Like other said look at local credit unions and other local lenders that will be able to extend small loans. It seems based on your approved amount (over 100K) and the house you are trying to buy, you seem to be a very responsible person on knowing how much debt you want to take out, and your comfort level. Don't blow that way!
...BUT I would first advise you to review any paperwork from the "property company" that you have paying "rent to own" for the home you live in. It is important that they show you have built up over $7000 of equity by paying down the home. There should be records of this...
I would second that. You need to go over your contract with a fine-toothed comb to make sure there aren't any technicalities that the Seller could use to disavow any of the credits you feel that you have built up under the contract. (By the way, that sounds like a very generous allowance on your rental payments.)
Be very careful of 'rent to own' companies. They are a prime source of fraud (taking the money then finding a pretense to not complete the transaction). Now this is a dated example, but I know of a company that essentially built a subdivision, then offered the homes as rent-to-own. Some 30 years later, the company still owned the vast majority of these homes. Very few had fulfilled the requirements for a deed. Now I know the rules have changed, but if you can get a deed with an owner-carried note, far better than a rent-to-own.
Traditional lenders will only give you down payment credit towards the purchase, with the monthly amount paid over the fair market rent.
Example: fair market rent for the home is $250 per month. Only the amount over $250 may be credited towards the down payment. EVERY DIME from day one of the lease must be documented.
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