Buying a Home with Little or No Credit

Establishing good credit is very important when seeking a loan. This is a critical element that lenders evaluate your ability to handle debt and make payments on time. There are a few suggestions for how to establish good credit, such as securing a credit card, car loan or other personal loan. Once you have the credit, be sure to make timely payments on all your bills, and pay at least the minimum payment on your new credit card every month. Keep records of payments for such expenses as phone, utilities, and rent payments. This offers documentation of your credit worthiness, should you need it. Don’t fall into the “more is better” trap where credit cards are concerned. One or two established accounts may be better than several accounts -- avoid taking on excessive debt as this may decrease your credit score and ability to qualify for a home loan. This blog is about what you must do to purchase a house when your credit is not well established.

The three general things lenders consider when qualifying applicants for a home loan are credit, income, and assets. Of course, there is more complexity to the qualification process, but these are the main categories that are reviewed. If you do not have an extensive credit history, you must show you can handle a mortgage loan through your income and assets, and you may be asked to put down a sizable down payment to mitigate the risk of loss.

Here are some options to help you with the process of homeownership if you have little or no credit:

• ·        Raise your credit score with credit card purchases and other credit purchases
• ·        Ensure all other areas of your financial life are strong and intact such as job, rental history and outstanding monthly bill payments
• ·        Find a co-signer with strong credit who will lend their financial strength to your mortgage application - consult with your loan officer on the implications of this approach

There are options available if you are trying to obtain a home loan with no credit. Government-sponsored FHA (Federal Housing Administration) loans may be a good option for you to consider. We offer several types of mortgage loans, with options to suit a variety of situations. The main thing is to contact me so I can help you determine which option is best for you to use to buy your new home.