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February 2018

Bad Credit Score Home Financing

Buying A Home With Bad Credit: Is It Possible?

1000 500 Sam Radbil

Buying a home with bad credit can be virtually impossible for some people. And if you’re a person who is impacted by a terrible credit score (reasons below), then renting a home or apartment may seem like a great idea.

You’ll have no taxes, no maintenance, no real long-term commitments, and you won’t be stuck with a property you don’t want if you decide to move. But when you realize that your monthly rent payment is just like a car lease payment with none of it applying to equity, you may decide it’s time to become a homeowner. If your credit score is low, and you are unable to qualify for a mortgage, then you you may want to look at non-traditional financing.

Here are some reasons that you might not qualify for a mortgage loan:

  • you have delinquent student loans,
  • overdue credit cards,
  • late auto payments, or
  • bad Minnesota credit.

And just take a quick glance at this chart and you’ll see why student loans are such a HUGE issue.

Buying A Home with Bad Credit - Student Loans

If this is the case for you, and you truly are serious about buying a home with bad credit, then check out these methods to buy your dream home:

Get Someone to Buy It for You

If you’re lucky enough to have a rich uncle, maybe he or she will purchase the property for you and put your name on the deed. You could make the mortgage payments and start building equity.

Work on Your Credit Score

Buying A Home With Bad Credit - Your Score

Alternative financing for people who take aim at buying a home with bad credit is sometimes necessary because your credit report is incorrect. Avoid the necessity of finding MN bad credit financing by obtaining your credit report at Credit Karma and following the proper procedures for correcting errors. The folks at myFICO say:

“It’s important to note that repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score. In fact, out of all of the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. If you haven’t done that, then you need to repair your credit history before you see credit score improvement.”

Do a Rent to Own

In a rent to own transaction, those looking for MN bad credit loans can purchase a home by entering into a rent to own agreement. With a very small deposit, renters can arrange for a portion of their monthly rent payments to be put toward a down payment or a reduction in the final home selling price. These transactions are complicated, however, and it’s important to gain legal representation before signing any rent to own contract.

Get a Private Mortgage

You don’t have to get a mortgage from a bank; anyone can lend you the funds. Maybe your boss, a relative or a private lender would be willing to help. You could offer to pay a higher interest rate or could offer to pay an origination fee.

Buying A Home With Bad Credit? GO FHA

Even with a low credit score, FHA loans can still be a possibility:

FICO Credit Score

These can be obtained through any participating mortgage lender. Even if you have a previous foreclosure or bankruptcy, FHA federally guaranteed loans can be a great option.

Get a Contract for Deed Deal

Minnesota contract for deed loans are commonplace. In this scenario you first find a property for sale by owner. Then, have the owner agree to sell you the property on a contract. While many contract for deed sales are straightforward, legal representation is very important here, because a sale of property already encumbered by tax liens and/or judgments, for example, can cause you big trouble.

A Great Place to Find Help

C4D is a well-respected and established company that helps Minnesota home buyers with bad credit through the process of becoming a homeowner. While there are other agencies and companies that will assist, C4D is directly plugged in to the MN contract for deed network. Maybe think about contacting us while you search for bad credit financing.

Rent to Own House in Minnesota

Rent to Own vs. Contract for Deed

1000 500 Sam Radbil

So you want to buy a house in Minnesota? You don’t want to do a rent to own deal or use some method of
“non-traditional financing.” In that case, it should be as easy as the steps below, right?

  1. Go to the bank
  2. Talk to a respectful and trusting loan officer
  3. Fill out some documents
  4. Prove income
  5. Walk out with an approval for a $500,000 mortgage with low rates like the ones shown in this chart:

Unfortunately, however, that privilege is many times reserved for those with stellar credit, while others with the following issues may have to look elsewhere:

  • Low credit score
  • Judgments
  • Garnishments
  • Divorce
  • Self-employment
  • Tax liens
  • Low debt/income ratio
  • Job loss
  • Unverified income
  • High student loan balances
  • Delinquent credit cards

Luckily, there are alternative financing methods (since renting might not be your best option as Minneapolis rent prices are skyrocketing) like rent to own and contract for deed. With new residential sales still on the upswing as shown in the chart below, non-traditional mortgage products are very popular.

Median Home Price

How Rent to Own Works

Rent To Own Details

In a rent to own scenario, you first find your house, and if the owner agrees to enter into this type of non-traditional financing, you agree to a monthly rental amount, and pay a small up-front option fee that gives you the right to buy the home within a certain time period—usually no longer than three years. It is important to have a least a portion of your rent credited to the purchase price. So, if your rent is $1000 per month, for example, try to have at least $800 of your monthly payment applied to the purchase price of the house. Of course, the purchase price should be agreed upon ahead of time, and all of these components should be outlined in your Minnesota rent to own agreement.

The Advantages

  • Your rent money is going toward equity.
  • You have a fixed price for the eventual purchase.
  • You aren’t responsible for property taxes, and possibly not for maintenance.
  • You are locked in to more than a one-year lease.

The Disadvantages

  • You will have to find financing at the end of the lease term.
  • You could lose your option money if you can’t obtain a loan.
  • If you and the seller have over-estimated the home’s value, you could be underwater at the end of the rental term.
  • The property could be encumbered by liens you aren’t aware of.
  • If you don’t finish the deal your option money will be lost.
  • If you miss a payment, the entire deal can be voided.

Contract for Deed

Many who seek alternative financing turn to MN contract for deed instead. With this process, you have an actual contract to purchase the property at a fixed price. As the Minnesota Federal Reserve has said,

“In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled.”

Minnesota is and has been a leader in the utilization of contract for deed instruments for those that need bad credit financing. The process is well-regulated and recognized by many as an efficient and reasonable home financing method for those with special credit situations. In contract for deed:

  • Your payment is not rent–it goes toward the home purchase.
  • You have no option money on the table to lose.
  • Your contract term can be longer than a rent to own agreement.
  • You have home financing at a fixed interest rate.

Minneapolis Federal Reserve

But Wait — Minnesota Is The Leader

If an unscrupulous owner sells a property that is already encumbered with liens, that can be a problem. In addition, if an owner files for bankruptcy during the contract for deed term, this can cause serious difficulties.

The Solution

A great way to avoid the pitfalls of both rent to own and Minnesota contract for deed is to deal with a reputable seller. While there are well-intentioned sellers in the contract for deed arena, companies like C4D take the process a step further as they are in the business of ensuring that the financing process is equitable, legal and fair. And, of course, never enter into any financing transaction without consulting with your attorney.

Are Realtors Losing Money on Seller-Financed Deals?

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You have a quality lead on a new listing, but you get some news  — it’s going to be seller-financed. Now what? Can you still get real estate commission? Is it going to be 6 percent? Should you even bother with clients like this?

Well, if you’re a Minnesota Realtor then you know all there is to possibly know about Minnesota real estate commission, right? And you know all there is to know about seller-financed commission, right? Well, if not, here’s what you absolutely need to know.

First off, let’s face it, good Minnesota real estate professionals just do not give up on deals because of bank denials. Rejections occur for many reasons (just take a peek at the chart below):

  • High student loan balances.
  • Low credit score.
  • Divorce
  • Job change.
  • MN bad credit.
  • Recent foreclosure.
  • Bad debt/income ratio.
  • Tax liens and judgments.
  • Arbitrary loan officers.
  • Inability to prove income.
  • Small business ownership.

Minnesota Realtor Commission

If your client was denied by Bank of America, for example, hopefully you keep working the deal even though a credit union or a community bank also gives the thumbs down. In situations like these, trying to find homes for sale by owner and working a MN contract for deed sale might be the answer. While you may be hesitant to enter the subprime financing arena, there are many well-intentioned potential homeowners with bad credit that just need a way to buy a home.

Sub Prime Mortgages

Homegates states that a contract for deed lets buyers purchase a home without a mortgage. When a buyer and seller sign a contract for deed or contract for sale, the buyer agrees to pay for the property in installments. The seller retains the deed–the document that transfers title–until the buyer has fulfilled the contract by making the final payment.

Serious Commission Issues

Commission for Real Estate

OK, you found a seller that will agree to a contract for deed transaction. Of course, you now need to make sure that the property is not encumbered by liens or other mortgages, and a title search will accomplish this. After all due diligence has been completed, an attorney should draft the Minnesota contract for deed documents.

You’re Not Done Yet

In a traditionally financed real estate transaction, the Realtor’s commission is protected, and will be paid from the sale proceeds. In a contract for deed transaction, however, disputes can arise as to who is responsible for paying broker commissions. The seller may say, “I’m not paying real estate commissions to anyone. I never signed any agreements that obligated me to do so.” The buyer may state, “Commissions have to come from the seller. I have enough problems already; I’m probably paying a subprime interest rate to get this deal done, and I can’t afford any more expenses.”

What Is The Buzz?

A recent Trulia FAQ page offered this advice:

“Here’s a solution: Don’t act in the capacity of an agent (meaning you are not representing buyer or seller… just yourself). Calculate the equity in the home. Negotiate a price that leaves you (buyer #1) some equity. Draft up an assignable purchase agreement for the negotiated price. Assign the agreement to buyer #2 for a certain percentage of the purchase price. There’s your payment… now walk away.”

If that seems complicated, you’re right. A better way to protect your real estate commission is to be transparent when submitting a contract for deed transaction to the seller. Let the seller know that the deal should work like any traditional financing scenario where broker commissions are protected. Reasonable sellers should realize that real estate commissions are paid in most transactions.

Ensure That You Receive Your Commission

In some cases, reasonableness just does not apply, but luckily there are some reputable Minnesota contract for deed companies that will engineer these transactions. Our company, The C4D Crew, makes the point that they always protect broker commissions.

These intermediary financing specialists are a great place to turn if you need to do a seller financed deal because they will actually purchase the property from the buyer and then sell it to your client with a MN contract for deed. Using an experienced and respected company will greatly increase chances that your deal will close while, at the same time, ensuring that you do receive your commission.

The Real Estate Commission Basics 

For more information on the basics of real estate commission, check out this video from Redfin.

Millennials Overcoming Mortgage Rejection

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What is a Millennial doing in 2018 with regard to home buying? Does anybody actually know?

We’ve even been told millennials aren’t buying homes because they buy too much Avocado toast.

Getting a traditional mortgage approval can be a great relief, but some millennials may have a problem qualifying for their first home because of the following:

Millennial Down Payment

  • Bad credit
  • High student loan balances
  • Less-than-solid credit history
  • Too few open accounts
  • Too many open accounts
  • Credit report errors
  • Unpaid tickets
  • Low credit score
  • Unfavorable debt to income ratio
  • Low down payment
  • No down payment
  • Maxed-out credit cards

What to Do If You’re Denied a Mortgage

This report (and chart to the right from ABODO Apartments) shows us that millennial home buyers are all over the country, even if they’re buying at a slower rate than expected. If millennial home buyers can’t get financing, here are seven ways they can overcome mortgage rejections:

Millennial Home Buyers

1. Credit Report Errors

Always get a copy of your credit report before you apply for financing. If you’re a millennial home buyer and you haven’t done this, however, don’t worry, because if you find incorrect information on your report, you can get it removed. Doing that can substantially increase your credit score and could result in a decision reversal. Credit Karma is a great place to start.

2. No Down Payment

Of course, you know that down payments are usually required for Minnesota home loans, but you may not be aware that lenders demand to know where the money originated. If you take cash advances on your credit cards and max out your lines, lenders will not be too pleased. A down payment gift from a relative or friend is many times acceptable as long as you disclose where the money came from.

3. Student Loans

Massive student loan debt is often the norm, but if you have delinquent loans, or worse yet, defaulted loans, this can cause a quick mortgage application rejection. Make sure that all of your student loans, both private and federal, are in good shape. Go to the NSLDS to find out your federal loan balances. Mortgage lenders do have new rules to follow regarding the payment amounts they have to consider in relation to your income, so high loan balances alone may not be the problem you they are.

Student Debt Control

4. Credit Cards

High credit card balances negatively impact your credit score, so to position yourself for mortgage application acceptance, you need to pay these balances down before you apply. Lenders like to see that you are using only about 30 percent of your credit lines.

5. Try Seller Financing

If the above remedies aren’t available to you, there still are ways to purchase your first home. InvestorWords says that creative financing is “Any financing arrangement other than a traditional mortgage from a third-party lending institution.”

First, see if your seller will agree to act as the bank. The cleanest way to do this is to have the seller be the mortgagor—just like a bank—and give you the deed for the house in exchange for a small down payment and monthly mortgage payments. Of course, the seller may charge you a higher interest rate because he or she may consider you to be a higher credit risk as they agree to make what they consider a bad credit loan.

6. Rent to Own

If you have found your dream home but just can’t get it financed, see if the owner will let you rent the home while crediting all, or a portion of your rent to a down-payment. These Minnesota bad credit loan transactions can be complicated and risky, but rent to own has worked for many buyers, especially with a homes for sale by owner MN that is motivated. And according the industry leader HousingWire, tech companies like Divvy Homes are working hard to revolutionize the rent to own market.

7. Contract for Deed

Minnesota contract for deed is a proven legal method where a seller gives a buyer immediate home occupancy. The seller retains the deed, but when the buyer has made all of the agreed upon monthly payments, the buyer gains ownership. While less risky than rent-to-own, those interested in contract for deed Minnesota financing should check with their legal team before entering into any such agreement. Also, there are reputable companies like C4D  that will work with you to accomplish the contract for deed transaction.

If you were rejected for a mortgage, first try and correct the application deficiencies that caused the issue. If that doesn’t work, you may want to look to creative financing to solve your MN bad credit loan problems.