With mortgage rates at record lows, it stands to reason that anyone who can afford it should buy instead of renting, particularly in view of low prices. However, a recent Morgan Stanley study reports that the average score for consumers who qualified for mortgages backed by quasi government agencies such as Fannie Mae is 762, while 65% of consumers have FICO scores of below 750. In other words, a full two thirds of consumers are shut out of the real estate market, having no choice but to rent. With incomes stagnant for some and falling for others, keeping up with bills is a constant strain, and many consumers have seen their credit histories suffer major dings.Add to that the vast number of former homeowners who were or are victims of foreclosures, and the group of consumers with bad credit scores further expands.
Rents have risen in price dramatically recently, with Zillow reporting year over year gains in 70% of major metropolitan areas. As of May 2012, San Jose, California has experienced an increase of 11%, San Francisco at 14%, while Minneapolis also saw a spike of 11%.
For those consumers facing foreclosure, it is highly advisable to start hunting for a suitable rental unit as early as possible instead of waiting until the last minute, as the competition for rentals is getting fierce.
How To Rent With Little Or Bad Credit
- Credit issues: Support your credit history with explanations to be submitted during the application, as some landlords can be amenable to credit issues that do not point to financial irresponsibility. Recommendations from employers or past landlords can further tilt the situation in your favor.
- Dress well: A nice outwardly appearance projects an image of being confident and of being in good financial shape. Remember what people say about first impressions.
- Income: The biggest factor influencing landlords is the tenant’s ability to make timely rent payments and is the crucial determinant in approval or denial. If your rent to income ratio is 40% or more, then definitely consider getting a suitable co signer with a solid credit history.
- Deposit: At times, offering a higher deposit than that required can sway landlords toward a more favorable decision by adding an extra layer of security.
- Lease: Short term leases can lead landlords to get to know you better and possibly lead to longer term leases in the future. As vacancies are opportunity costs to landlords, you may also offer to move in immediately and start paying rent, whether this is on your timetable or not.
- Independent landlords: Large property owners have a strict set of criteria they expect their property managers to adhere to, but independent landlords are not so constrained. Local realtors can be such a source of independent landlords.
Getting rented apartment with little or no credit can seems like a huge hurdle, but creative negotiations can still bring success. As a matter of last resort, there are always extended stay hotels.