Buying a house with a bad Credit Record

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I have learned that being debt free does not lead to a good credit score. When I was buying my apartment, this added another six months to the process because I had to improve my credit report and credit score.

Rent2Buy is an alternative way to buying property. It gives you the time to buy your dream house as you fix your credit score. You will still get to buy the house that you want, but you do not get to buy it immediately, as you still have some financial issues to fix.

Apply the following three strategies:

  • Perform credit maintenance or repair.
  • Rent2Buy.
  • Find the right bank through a broker, mortgage advisor or bond originator.

Firstly, the Deed of Sale is signed. The Estate Agent’s Deed of Sale is often used, however, this can fail if the prospective buyer cannot get the required deposit for the bond together. Then, the lease agreement and the three-page Option to Buy document is drafted.

The prospective buyer now has the opportunity to rent the property. Any time during the duration of the rental period, the tenant can exercise their right to buy the property once they get a bond.

The tenant now has 12 months to improve their credit score, reduce their debt which will also improve their affordability. About six months later, once the tenant’s bond has been approved, they can buy the property.

During that time, the buyer would pay the same rental that she would have paid had she bought a property. Let’s work on a R1 million property. You will pay R10 000 a month to the bank, but if you rent the same property you could be paying R7 000 for that same property.

Now, take that extra R3 000 a month that is saved and credit that to the buyer towards the deposit. After a year, you will have saved R36 000 which will help you for the third leg of applying for a home loan, and can be used as the deposit. By doing this you will show the bank that  you have paid R10 000 a month, which is equal to the bond repayment. You have improved your credit score, you have improved your affordability, plus you have paid a deposit.

Let us negotiate the bond. The seller is in a good situation because she is getting R10 000 compared to R7 00. In addition to that, we ask the buyer to take over the responsibility to pay the rates, taxes, and levies, and that can be an extra R1 000 savings for the seller. The estate Estate Agent also gets to secure their commission. Alternatively, the buyer can do an installment sale concept where they can directly negotiate with the seller to pay the property off over a period of time.

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