Good morning BP!
I am changing my strategy from simple rent -to Lease option. As a result I would like to find a Broker or Lender that is used to working with troubled credit so that I have a higher opportunity of getting my tenants qualified and capable of exercising the options.
When you say troubled, what do you mean?
The likely avenue for those with credit issues is FHA. The underwrites are a bit more forgiving and can go down to 580 with 3.5% down, but if you're outside of their guidelines, I doubt you'll find a lender for your people unless they've got significant down payment (and if they had that, why would they be in the situation they're in).
We don't do FHA at US Commercial, but I can refer you if you'd like someone that's close to Fredericksburg.
Hi @Jairus King ,
@Stephanie Potter is right (as usual) that FHA is the standard solution to bruised credit.
To set your expectations right, however, keep in mind that of all the "can my tenant with bruised credit get a mortgage?" scenarios, probably well under 1/3 turn out with the answer of "yes." I work with a lot of landlords, so I get such inquiries pretty frequently. Most of the time these aren't "tenants by choice" (people who appreciate the flexibility, etc) but "tenants by default" because they cannot get a mortgage.
"Rent to own" is not a reliable & viable exit plan for a property. Think of the self-selection bias at play here, you're targeting tenants that can't qualify for a mortgage today but like to tell stories about what tomorrow will bring. So don't be surprised when they come to you unable to pay rent today, but with a story about what tomorrow will bring... you know the stories of folks that can't pay rent are generally BS, what makes you think the stories from those same folks who think they will bump their FICO score 200 points are any more credible?
I hope that didn't come off as harsh, I just don't want to see you putting your eggs in an unreliable basket. And, like I said, there are certainly those that will be in the ~1/3 that the above is not applicable to.
Duane Buziak is a lender based out of Richmond who will lend to people with scores as low as 520.
Thank you for the input everyone! @Chris Mason - I do appreciate the consideration, but we do need to factor in a couple points on that strategy. First the assumption that bruised credit= late rental payments is simply not the case. Each person must be evaluated and measured on a case by case basis. For example- in one of my lower end properties the tenant had bruised credit because of a divorce. He is still working, divorce is over and he is able to continue his life. He had some credit card balances and a few charge offs in collection. That is enough to hurt him substantially, but he is able to bounce back over time if he works at it. Though I understand your point in how this substantially raises the level of risk. Secondly there is an assumption that I am targeting "new tenants". I may have not been clear in my initial posting. I am converting agreements over to lease -option, which means that my tenants have already been in place for about 2 years. If this is the only exit strategy I could see your point, but I would like the opportunity at having an option than to just plain rent for now.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.