This client is in a tough situation. he has a successful business which apparently is doing very well except that he has been hit with two calamities which nearly bankrupted him and took every last cent he had. He obviously did not pay all his creditors at the time and as a result has a bad credit rating.
He wants to buy a home, but the interest rates are too high for him to afford due to his bad credit rating. Someone with excellent credit and a decent down payment can obtain a mortgage around 3% interest, while someone who has bad credit may pay an interest rate of 14% or even higher. We chose 14% to illustrate how big a difference the interest rate makes in a mortgage.
At 3% the monthly payment is $565.58, while at 14% the monthly payment is twice this payment at $1132.50. Many people might find this shocking, however interest costs can add up quickly. Since this customer is obviously a knowledgeable business person, he understands the value of money and cash flow and how important it is to obtain a truly reasonable interest rate. For more information on the calculations see below.
He will be better off continuing to rent for awhile, saving up more cash for a larger down payment and setting up a fund within his company i.e. the restaurant for emergencies. With an emergency fund, he will not be impacted by any calamities that occur with the restaurant and he can continue to repair his credit rating. Taking this approach will save him a great deal of money in the long run and ensure that he can qualify for a much more reasonable interest rate saving him literally thousands of dollars over the life of his mortgage.