Tips For Getting A Mortgage With No Credit
It may seem counter-intuitive – you hold no debt and have no loans, so you would think that a bank would see you as a good choice for a mortgage. Yet, the opposite is often the case. Without a credit history, lenders have no idea whether you will act responsibly once you have the mortgage note in hand. There is hope, though. The following tips can help you become mortgage-worthy without racking up unnecessary debt.
Tip #1: Gather a Large Down Payment
There's no question that a large down payment is the surest way to get a more favorable response from a lender, regardless of the state of your credit score. Large down payments benefit you and the lender in two ways:
The lender is loaning less money, which means they are taking less of a risk. On the flip side, you are borrowing less, so there will be less interest in the long run.
A large down payment shows the lender that you are responsible enough to safe up a large percentage of your income toward a goal.
Tip #2: Look Into Non-Traditional Credit Options
Sometimes a lender will consider something other than a credit score to verify your trustworthiness as a borrower. For example, some lenders may consider a history of paying utility bills on time or proof of timely home rental payments each month in lieu of a traditional credit score. You may need to contact several lenders to find one that works with non-traditional credit checks. Or, contact a mortgage broker. They have relationships with many different lenders, so they may be able to find one that will work within these parameters. Keep in mind that non-traditional credit acceptance typically means manual underwriting. This can take longer than traditional underwriting, and you may need to show more documentation to qualify for the loan.
Tip #3: Document Everything
You will need to be able to show strong documentation for your income and expenditures if you want to get a mortgage with non-traditional credit or minimal credit. This means you need to be able to show proof of income from every employer that you work for, including any side jobs you may be working. Process all payments and bills through your bank account when possible, too. This will provide a documented income deposit and expenditure list for the lender to look over.
Tip #4: Get Some Credit
You final option is to build up some credit. A relatively safe way to do so is to open up a no-fee credit card, perhaps through your bank or credit union. Use it to pay your bills, but make a point of paying it off every month. After a few months of reporting you should have a credit score to show. You will need to talk with a lender or broker to see how many months the account needs to be active before it is considered, though. Also, check with the card provider and make sure they report your activity to the credit bureaus. Some card providers may not update monthly if there is no balance. In this case, you may need to carry a small balance, such as a dollar or two, to ensure reporting.
For more help with mortgages, contact a business like FCN Bank.