Recently millions of Americans have been faced with a similar problem – they have bad credit and they need to find somewhere to live.
Maybe things have started to improve and there’s money enough to rent or buy, but having a bad credit score isn’t a problem that’s easily resolved.
Sure things will get better over time, but you need to rent or even buy a home now. So what do you do?
The question of whether it’s better to rent or buy when you have bad credit isn’t an easy one to answer. There are a lot of considerations. Of course, there are advantages and disadvantages to each option.
I’ll lay them out here so everyone can weigh the choices based on their own situation and hopefully come to the solution that meets their needs.
1. Buying a home with bad credit.
If you are able to find a lender willing to give you a loan when you have a bad credit score, chances are the terms will not be favorable.
Your interest rate is likely to be as much as two full percentage points above that of someone with excellent credit. In addition, you will often be required to put more money down than is typically required.
There is also much more scrutiny of your income, current debt and even personal and business relationships.
“Making the choice that works best
in the long run is the way to go.”
On the other hand, buying a home will immediately begin to help you repair your credit – if you are diligent in making your payments. It will also allow you to start building equity and establishing a more stable financial footing.
After 24 months or so, it may be possible to refinance the loan to a much more favorable interest rate based upon your now improved credit score.
2. Renting a home when you have bad credit
The easier of the two options is obviously renting a home. However, a landlord will almost always require a credit check before renting to you, so your bad credit will probably come up.
In this case, you may consider the approach of telling the potential landlord in advance about your bad credit. Be sure to explain your situation and take full responsibility for it.
In addition, tell him you are in the process of fixing the situation and getting back into good financial shape.
There is (a little) less scrutiny of your financial situation with landlords, especially if you are open and honest with them.
In addition, the amount of money required to rent is often less than what would be required to buy, especially at the increased rate of interest you’d pay for a mortgage.
Renting also has far more flexibility, allowing you to consider moving if a job opportunity presented itself.
There are situations where each option would be preferred. Given your particular case, making the choice that works best in the long run is the way to go.
If you choose to rent now, it may make buying a little easier down the road as your credit score improves. In either case, it’s an opportunity to work on getting your finances and credit score into better shape for the future.
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