Buying a home is the American dream. A home buyer must often jump through a number of hoops to make the dream a reality. The path can be especially rough when the prospective homeowner has no credit history at all. Mortgage applications typically include a thorough credit and background check, so this presents a major obstacle, but it’s still possible to get a mortgage and own a home with no credit.
Start Building Credit
Start building a credit history as soon as possible. Obtain a credit card or store charge account, open a utility or cell phone account, or finance a purchase through a store. Lenders want to see a pattern of regular, reliable payments for at least 12 months because this shows responsibility and an ability to pay your bills on time.
Find a Willing Lender
Look for a lender that’s willing to work with a no-credit home buyer. Talk to local banks and credit unions that may have easier loan requirements than larger banks. If you’ve banked for a long time at a particular financial institution, ask about its home loan products. A bank will often try to assist a customer with a reliable history of account usage in the spirit of customer retention,
Save Up a Significant Down Payment
Save a significant amount of money so you can make a hefty down payment on a house. This money reduces the bank’s risk and keeps the loan terms sensible. Check out the average price of properties in the area where you want to buy to help you determine a savings goal. A 20 percent down payment or even mores increases the chance that you’ll qualify.
Consider Lease-to-Own Homes
Investigate and include “lease to own” homes in your search. A portion of your rent money goes toward a down payment on the house with this sort of arrangement. At the end of the rental term, the landlord then sells the house to you. Lease-to-own is a workable option when a home buyer has nonexistent credit but ready cash. The home buyer saves money, builds credit and obtains a mortgage with decent terms after the rental period is over.
Look into an FHA Loan
Apply for a government-backed FHA loan with alternative forms of income and credit verification. Robb Severdia, an Oregon mortgage broker, tells the website Get Rich Slowly that with no credit, “some lenders consider ‘alternative’ sources of credit ratings such as utility bills, cell phone, gym membership, rent, etc. The lender typically requires at least four of these alternative sources, and each source needs to be reporting for a minimum of 12 to 24 months.