Are Mortgage Alternative Right For You?
New mortgage underwriting criteria took effect Jan. 10 requiring a debt-to-income ratio of less than 43 percent for most qualified mortgages. Even if you don’t qualify for a mortgage under the current lending regulations, renting may not be your only option. Alternatives such as rent-to-own and contract-for-deed transactions make homeownership possible for those who may not meet mortgage underwriting standards.
These transactions have some variations depending on state rules and the contents of the legal agreement, but a rent-to-own or lease-purchase transaction often means the buyer rents from the owner for a set period of time, after which the buyer agrees to purchase the property. In some cases, the tenant might pay extra money each month toward equity in the home. A lease-option agreement gives the lessee the option and not the obligation as with lease-purchase to later buy the property.
What is a mortgage?
the charging of real (or personal) property by a debtor to a creditor as security for a debt (esp. one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period. A debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. Mortgages are also known as “liens against property” or “claims on property.” If the borrower stops paying the mortgage, the bank can foreclose.