First time home buyer: How to buy a house with no credit?
Buying a home is the American dream, and most of us will do about anything just to make this dream a reality. If you are a prospective homeowner with no credit, this path can be especially rough. The first thing most lenders look at when you want to buy a home is your complete background and credit history. Most people have traditional lines of credit such as credit cards, auto loans or a current mortgage that form a track record of how they manage debt.
But if you have no credit history, which is one with no credit card debt or other kinds of loans, it might be harder to establish a set of credit stats. That could make it tough to find a mortgage lender who will work with you. But don’t give up, it’s not impossible.
Start building credit ASAP
You can get a store charge account or credit card, or open a cellphone or utility account. You also can finance a purchase from a store. Lenders would want to see that you have a pattern of reliable, regular payments for at least a year as this shows that you are responsible and can pay your bills on time.
Also read: Getting ready for buying your first house
Find a willing lender
Approach a lender who can work with home buyers with no credit. Talk to credit unions and local banks as they may have easier loan requirements compared to bigger banks. If you have banked for long at one particular financial institution, ask about their home loan offerings. Usually because of customer retention, your bank will try to assist you, especially if you have a good history of using your account.
Put down larger down payment
By putting down larger down payment, your loan amount will be lower and the risk of the bank is reduced. The loan terms can be made more sensible even when you have no credit record. Before you set up a savings goal, you might want to see the average price of the properties where you want to buy. Plan of putting down 20 percent or more down payment to increase your chances that you will qualify.
Also read: How Important Is Your Down Payment on a Home?
Consider lease to own or seller financing
Search properties and include ‘lease to own’ or ‘seller financing’ listings. With lease to own, part of the rent money will go to the down payment of the house. By the end of the lease period, the landlord will sell the property to the tenant. This is a workable option for home buyers who do not have credit, but have cash.
With seller financing option, instead of getting mortgage from a bank, home buyer is getting loan from the seller. Every month, the home buyer will making payment to the seller.
Consider government backed loan
Apply for a government-backed FHA loan with nontraditional credit histories can be used to qualify for a mortgage. Some lenders are considering alternative sources of credit ratings like rental payment, cell phone bills, utility bills and others. The lender will require a couple of these alternative sources, with each reporting at least a year or two.
Next steps
If you can show an on-time payment history, have little debt and have saved enough to cover mortgage costs with some reserve, you may qualify for a mortgage despite having a credit history. Speak to a few lenders to find out what options might be available to you.
Wondering how much house you can afford?
Click here to access the Mortgage House Payment Calculator. Simply add in the price of the home you are considering and the calculator will return your estimated house payment. Change length of loan and interest rates to adjust results.
New Listings Homes for Sale Phoenix AZ
Search and view your dream home your way
You can now be alerted as soon as a Phoenix property matching your criteria hits the market. Be one of the first to see new listings. Simply type in everything you want in a house and save your search here to be notified.
