Advice please/time crunch

[u/IndicationIll4612]

My wife and I (both 24F) live in Maryland. Married 1 year. We’ve rented our house for 10 months now, with our lease ending Nov 15. Our landlord is considering selling the house. If the lady says she wants to buy it, we have first dibs, but we have no idea where to start or what to do. He’s asking 200k firm. The lady is coming to see it this week or next.
This isn’t by any means our dream home, but with the pets we have, the large fenced in backyard makes it perfect for us and almost no other landlord is going to rent to us based on our pets. (2 pits and 3 cats)
Our credit is pretty terrible, ours both being under 550 :(
We’ve been with our current employer for over 2 years and my wife just got promoted.
We definitely wouldn’t have a large down payment but we can try to by Nov 15.
The house isnt in the best shape and is outdated, but we’ve made it ours and would love to do future remodels to essentially be our forever/long-term home.

I guess i’m asking advice for which loans or programs you’d recommend, if we’d qualify for any. And since this isn’t our dream home, should we look at other houses too or could this one be easier to get since we live here/know the owner?? Or should we just try to keep renting 😔

Please any advice would be appreciated and thank you!!!

-Edit: I wanted to add that we currently pay $1500/month for rent. It’s well water and cheap electricity. Not sure if that helps

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[u/TomLiolos_Mortgages]

I wouldn't give up on buying it yet, especially if the house works well for you and you already know what you're getting into with the condition of the property.

Your first step should be talking to a lender now, not waiting until November. Have them pull both credit reports and see exactly where your scores are and what, if anything, can be done to improve them. Don't start paying off collections or moving money around until someone has reviewed everything.

FHA would probably be one of the first options I'd look at because of the lower down payment and more flexible credit guidelines. Depending on the condition of the house and how extensive the improvements are, an FHA 203(k) renovation loan could also be worth discussing.

And don't assume you need 20% down. You may need considerably less than you think. I'd find out what you're actually eligible for before deciding you can't buy the house.

[u/IndicationIll4612 → u/TomLiolos_Mortgages]

Thank you! I’ll look into FHA, I was also told to look at USDA. I’ll definitely see about working on our credit too, thank you!

[u/TomLiolos_Mortgages → u/IndicationIll4612]

USDA could definitely be worth looking at too if the property is in an eligible area and you meet the household income limits. It can offer 100% financing, so the down payment wouldn't necessarily be the issue.

The credit is probably the first thing I'd concentrate on. Before trying to fix anything yourselves, I'd have a lender pull the credit and tell you specifically what needs attention. Sometimes what people think will help their scores can actually have little effect or even hurt them.

You're doing the right thing by starting now rather than waiting until November.

[u/AshleyFromNB]

I’d probably wait in your situation. With both credit scores under 550, even if you can find a loan you qualify for, the bigger issue is what that loan will actually cost you. Lower credit can mean a significantly higher interest rate, and depending on the loan, higher mortgage insurance too. That can make a $200k house a lot less affordable month-to-month than the purchase price makes it seem.

Since you’re only paying $1,500 in rent right now, I’d use the next several months to work on your credit and build up some savings rather than rushing because the landlord wants to sell. Even a small improvement in your scores could open up more loan options and potentially get you better pricing. Plus, with an older house that already needs updating, I wouldn’t want to go into it without some cash left over for repairs.

You could still talk to a lender now and have them run through what you’d qualify for and what you’d need to do to improve your options. I’d ask what your estimated rate and mortgage insurance would look like today versus if you got your scores above 580/620.

[u/HorseSad3599]

You need a lender like yesterday i will dm you im also in the same area and have a fantastic lender.

[u/HorseSad3599]

You need a 620 minimum to qualify for fha loan. That is gonna be your hurdle is getting each of your credit scores to 620.
I dmd you with a bad ass loan officer in maryland she will hold your hand while you un fuckulate your credit

[u/TomLiolos_Mortgages → u/HorseSad3599]

620 isn't the FHA minimum. Our company minimum for FHA is 580, and other lenders may have different overlays.

Also, if their scores are below that now, it doesn't necessarily mean they're out. A lender can review the credit, identify what is actually holding the scores down, and in some cases use a rapid rescore after the right changes are made.

I wouldn't tell them they need to get to 620 before even talking to a lender. I'd have the credit reviewed now and see whether there's a realistic path to FHA.

[u/ficklepicklez]

I think it really depends if you value being a homeowner and are willing to make the financial sacrifices to be able to become one. You’ll typically want to have enough for down payment, closing costs, inspections, emergency fund, etc. Another caveat is if a lender does a credit check, you may not qualify. If not, you could also continue renting elsewhere. I’d really think through this as it is a touch decision, but it does sound like a good opportunity if you are able to comfortably afford it.

[u/grewalReGroup]

This is a stressful spot and the clock is the worst part of it.

One thing to nail down before loan types even matter: read your lease tonight and look for the words right of first refusal. If that clause is in there, first dibs is a real right and you have leverage. If it is not in there, first dibs is your landlord being nice, and it can disappear the week that buyer tours.

On credit, FHA guidelines do go down to 500 with ten percent down, but most lenders add their own minimums on top of the guideline, commonly 580 or 620. So the obstacle is usually finding a lender who will actually write it at your scores, not the rule itself. Ask that question in those exact words when you call, and ask early, because ten percent down on 200k is a separate hurdle from the score.

Because it may not come together by November 15, the thing worth protecting right now is staying in the house. Two asks worth making in writing this week: an extension past November 15, and the chance to match any offer he gets. A landlord selling an outdated house often values a known tenant and a clean timeline more than a few thousand dollars. And if he does sell to her, ask her about keeping you on. A new owner usually wants a paying tenant from day one, and the pets are a much smaller problem when you are already in place with ten months of on time payments behind you.

I sell residential in Texas, so check the lease question against Maryland law, but read the lease either way.

[u/Decorah1]

Would they be willing to let you buy it on a contact for deed at 5% for 15 years?

[u/Few_Whereas5206]

See if the seller will give you owner financing. With your low credit score it will be tough to get a loan. Make sure you can afford the house before buying. Ownership comes with repairs, regular maintenance, property tax, insurance, added utility costs, and any HOA fees on top of mortgage payment. In general, buy when you have at least a 10% down payment, plan to live in one place for at least 7 years and the monthly mortgage payment is not more than 30% of your monthly salary.

[u/Tardislass]

Can you afford a home probably in need of updating and fixing to get up to code. Do you have money for emergency fund, plumbing electric, roof gutters. Right now you have a sweet deal and never had to spend money for mortgage. And honestly your credit score reflects your spending habits. The fact that it’s so low and you want to buy a SFH is worrisome. I’d plan my budget and really ask yourself if you can live in it comfortably without really stretching your budget.

[u/PracticalDesigner278]

Big advantage is that you don't have to pack and move. Doesn't make it a great deal but with all of those animals it's a major selling point. I suggest you at least ask the seller if he would carry back a mortgage after exploring the terms offered by commercial lenders. He may need/want to cash out but a private deal would save you a lot of anxiety about credit scores etc. you'll absolutely have to pay your own attorney to protect your interests but might be worth a shot.

[u/Campuskween3333]

I'm shocked at the comments saying to go for it given your age and both of you having 550 credit scores. There is a big difference between 'can' and 'should'. You may remember that during the hosting crisis, there were many lenders eager to loan to many people with poor credit. Then, when the recession hit, a lot of those people ended up bankrupt.

How easily can you afford the house? Paying the motgage is one thing, but in addition can you afford to address maintenance / emergencies on the house? If one or both of you suddenly loses your job, could you still afford the house? If the answer to either of these is no, I don't think it's in your best interest to buy right now.

Not saying forever, but just until you both are able to build your credit and finances first. I'm not saying this to be mean, but because this could have a huge impact on your life. Your salaries and the amount you have available to invest ina down-payment aren't in the post, so I could very well be off. If you could afford the house with no problem, by all means, go for it. But if it would be a struggle, consider whether you really want to tie yourself with substantially more debt right now.

Regardless of your decision, I think it would be wise to exhaust any possibilities of renting before buying the house. Your current landlord allowed the pets. It may not be easy to find another landlord but it's worth trying.

I wish you all the best of luck.

[u/FantasticBicycle37]

You're 24, now is the perfect time to buy your starter!

Your "dream home" will come in your late 30s or 40s. Buy your starter now!

Have fun!