How to settle debt to rent or purchase a home?
Buying or renting a home while you are already in debt is not easy, especially when you are sitting on a mound of debt, but this is not impossible to buy or rent a house while you are in debt. We are providing some tips that will help you to get closer to finish line
Know your debt to income ratio
You must have knowledge about your debt to income ratio. You can calculate your debt to income ratio by dividing totally monthly debt by your gross monthly income. For example, your monthly debt total is $500, and gross monthly income is $2000; in this case, your debt to income ratio is 25%. Calculating debt to income ratio is important because lenders will use this information to determine that what your ability is to repay the borrowed amount is and will decide your reliability as a borrower.
Lenders prefer the debt to income ratio, which is below 40%. If your ratio is more than 40% in this situation, you should work on paying more debts before buying a home. It will be difficult for you to handle new debt with old ones.
Saving for a down payment
Many people avoid buying because of a 20% down payment requirement. This is a required number, not a recommended amount. Many mortgage lenders are there to help you to find a down payment that works for you. For a conventional mortgage, only a 5% down payment is required. There is nothing to get panic that you will never be able to afford a 20% down payment.
But one thing is important to know that more money you pay for the down payment, you will get a better interest rate and less you will pay in your installment plans. There are many down payment strategies to get you a home within your choice of without drain your bank account.
Creating a budget
If you decide to buy a home while already being in debt, you are going to add more debt to your current debt. You should design a budget for your expenses and try to find where you can save money. After purchasing home, re-evaluate your budget. You should have an eye on your budget as your financial situation changes.
Staying below your price range
Despite of debts, you get approved for home loan avoid taking highest loan amount. If your credit score is good, banks will offer you more loan amount than you need. You have qualified for a large amount; it does not mean that you should use all of it. Go for houses which are below your budget; this will be easy for you to handle this loan in the future.
How to settle a debt to rent a home?
This is possible to rent an apartment with bad credit. Your credit report gives positive signs that you are trying to improve while having bad credit. Here a few things that you need to understand to look for a rented apartment while you are in bad credit.
Find Rentals That Don’t Do a Credit Check
You can ask the landlord before filling an application that do they check credit reports; small properties run by an individual don’t check credit reports. This is a good opportunity for you to overcome those financial problems which are making your credit report bad.
Properties run by larger groups and big companies have strict rules, and they will strictly check credit reports. Their rules & regulations don’t allow them to consider anyone having bad credit.
Paying rent in advance
If the landlord thinks you can be a risky client, you can offer him to pay in advance, or you can set up an automatic payment method in which payment comes directly out of your paycheck. You can present yourself as a responsible tenant.
Letter of recommendation from an employer or former landlord
Presenting yourself as salary earning, respectable and reliable client is very helpful, especially when you are providing proof from those people who know you best.
- Letter of recommendation from previous employer shows
- Your track record about paying rent
- Your behaviour with property and neighbourhood
- How much time you have spent living on each property
- Contact information of previous landlords
Employ letter will show that you have the ability to cover the rent expenses, from how long time you have worked with the employer plus your annual salary. If you
If you present these letters before the demand of the landlord, it will be very impressive. You can easily win the confidence of the landlord.
Offering to move immediately
Every landlord wants to rent every unit and wants the rent paid on time. If there is a dormant unit, and you offer the landlord to move in immediately, the landlord will consider renting this unit to you. While coming for the inspecting unit, don’t forget to bring cash and a chequebook. If you pay on the spot, you have increased your chances of moving in.
Purchase Renters insurance
You can provide landlord more security by purchasing renters’ insurance. Renters insurance costs just 75% of one month’s rent.
But this can really help you to get an apartment when there is no other way.
Paying a larger deposit
By offering a larger deposit, you can show a kind gesture to the landlord. You can offer 3 to 6 months’ rent in advance with a security deposit, or you can offer a larger security deposit. No landlord is going to say no to this offer.
Offer to pay a higher rent
If your bad credit report is making it difficult for the landlord to decide, you can use this trick. You can offer a slightly higher figure for rent. There are some laws that landlords cannot accept more than two months’ rent, but if you offer a high rent, this will surely work.