Renting now... Looking to Own here in 2 Years

Fix your credit for starters. Pull copies of all three reports and check them for inaccuracies. Dispute the files that do not belong there or are incorrect. You'd be surprised at how many people have things that don't belong on their credit.

While doing this, you should come up with a monthly budget that will both allow you to pay down debt and save money. If you have too much debt and can't save, then pay down your debt (more on this later). Your budget should be realistic and should save you money you previously had not been saving. These extra savings can be put towards debt reduction.

Those two things will help improve your credit score. Keep in mind that when negative reports are true, about the only thing you can sometimes do is wait it out and let them fall off. After a certain period of time, they don't get counted in your score anyway.

When you've mastered your credit, you should save money for both a down payment and for reserves. Lenders want to see cash reserves of six months for PITI payment in addition to the down payment. If you get an FHA or other govt program loan, you can get in with less down, but will have to pay PMI which adds to your cost monthly. Lenders also look at a DTI (debt to income) ratio. This takes into account not only your PITI payments, but also any other payments (credit cards, student loans, car loan) that you may have as well. A conservative rule of thumb is that you take your gross income annually and multiply it by three. This will give you the price of a house that you can afford.

Edited: 06/26/2010 at 10:23AM

Marcus Mccray

Real Estate Consultant · Monrovia, California

73 posts
549 Influence
3 Awards

Icon_minipost Nov 04 '09, 11:20 AM

Casey,

This is what I do...help renters become homeowners! If a person sticks to the laid out plan it is possible for them to go from renter to a homeowner in about a year. It is a business that I just started up and am working on the website as we speak! I do charge for the service so if you want more details you can email me at my address below in my info.

For now here is some free tips cause anything I post here will be free...

*The min score to qualify for a home loan right now is 620 so that should be your aim or higher. Credit repair will give you a good head start.
*Also you will need a minimum down payment of 3.5% of the purchase price, ie house price= $100,000x3.5%=$3,500 down payment.
*You'll also need money for closing costs (lender fees, escrow fees, title fees, appraisal, etc) that tie in with the purchase of the house roughly comes out to 3% of purchase price.
* You also want to cut/pay down your debt as much as possible. As stated above lenders base their decisions heavily on your debt-to-income. Here's how you figure that...take your monthly gross income and divide by 2.Next add up all your monthly credit payments ie car, credit cards, student loans (unless deferred), medical bills etc.and subtract that from half your gross monthly income. What you have left is the house payment you can afford. So you could then buy a house where the monthly payment (PITI) is less than that number.
<b>Example: Gross monthly income=$4000
Divide by 2=$2000
Lets say you have a car payment and 2 credit cards that total $500 every month.
$2000 minus $500 = $1500
You would qualify to buy a house where the monthly payment (including taxes and insurance) equals $1500 a month or less.</b>
(the amounts above may differ depending on who you talk to and what lender you go through)

There are also alternatives like a lease option or rent to own but most owners will want to be sure that you will qualify for a loan at or before the time comes for you to exercise your option to buy.
You can also find a distressed homeowner and take over their mortgage payments. Depending on how many months behind they are it may be affordable for you to catch up the payments.

Hope this helps!!

Edited: 06/26/2010 at 10:23AM

NC Mark

Real Estate Investor · North Carolina

1086 posts
7096 Influence
8 Awards

Icon_minipost Nov 04 '09, 09:34 PM

Here's some advice that'll be hard to follow but might change your life:

Get a second job. During the first year pay off every debt you owe.

During the second year save every dime. Do the same for the third year.

By the start of the fourth year you will have enough cash to become an INVESTOR rather than a CONSUMER. You will never have to work for anyone else again.

Edited: 06/26/2010 at 10:23AM