As a prospective first time homebuyer, your credit score will be a major determining factor when it comes to securing a mortgage and ensuring the best interest rate. It may seem counter-intuitive, but it can be just as detrimental to have no credit as it is to have bad credit. This is because it makes it nearly impossible for the mortgage lender to determine how trustworthy you are when it comes to paying back your debt. If you want to buy a house and you have no credit history, the following can help you establish credit for the lender.
Tip #1: Request credit reporting
You may be able to have non-traditional items reported to the three credit bureaus if you request. For example, your current landlord may be willing to report your monthly rent payments to at least one of the bureaus, thus giving you a credit history. Keep in mind this is only a good option if you regularly make your payments on time.
Tip #2: Look into alternate reporting
Some lenders may allow alternate reporting. This means that you can show your credit worthiness by proving a history of timely payments to utilities and other entities that don't always report to the credit bureau. This can include your electric bill, water utility payments, or extra services such as your cell phone or cable provider records.
Tip #3: Build some credit
There are two relatively risk-free methods to building credit quickly over the course of a few months:
Apply for a credit card and use it only to pay bills you would have been paying otherwise, and then pay the bulk of the balance off each month. You may need to carry a small balance, such as $10, from month to month to ensure that your on-time payments are actually reported to the credit bureaus.
Take out a small short-term personal loan from your bank. Place the money inside a separate savings account and set up automatic payments on the loan so it is always paid on time. You will end up owing a little bit of extra at the end for interest, but it will help build your credit.
It may be necessary to take out a secured credit card or provide collateral for the loan since you have no previous credit history.
Tip #4: Look at small or alternative lenders
If you can't get a loan from a larger mortgage lender, contact smaller lenders. Small lenders and those based out of smaller banking facilities, like credit unions, often have more freedom to have the underwriters work with you one-on-one, which makes them more likely to make exceptions for your situation if you are judged trustworthy. You may also be able to qualify for a mortgage through a government program, such as with an FHA loan, since they accept alternative forms of credit worthiness approval.
Contact a mortgage lender in your area so you can begin exploring your options for your first home.Share
9 September 2016
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