People without a credit history can still qualify for a home loan, though it does make the process more difficult. Your credit history can account for as much as 35 percent of your credit score, according to the Federal Reserve Bank of Cleveland. With no credit history, the lender is unable to determine if you are a responsible borrower. Still, there are steps you can take to deal with this issue.
Alternative Forms of Credit
Having no established credit does not mean that you cannot prove you pay your bills. According to the Home Loan Learning Center, your lender might allow you to submit your utility bills to show your history of making payments on time. You can also provide a statement from previous landlords saying you paid your rent on time. The National Consumer Law Center lists several nontraditional credit reporting companies that can provide documents your lender might accept in lieu of a traditional credit report.
The Federal Housing Authority has loan programs for buyers with no established credit. The basic requirements for an FHA loan for individuals with no credit history include two years of steady or increasing income and a mortgage payment that is no more than 30 percent of your before-tax income. The FHA prefers that your employment history be with the same employer, though this is not mandatory.
Offering the lender at least 20 percent of the purchase price as a down payment might encourage it to approve your loan application. The more you can pay as a down payment, the less risk the lender assumes if you default on the loan. Some states have programs to assist individuals with their down payment if they have no credit history.
Ask someone with established credit to cosign for your mortgage. A cosigner might not help someone with bad credit get a loan because lending institutions typically look at the lower of the two scores. However, a cosigner can help someone with no established credit. When talking with a potential cosigner, remind him that the cosigned loan will appear on his credit report and could affect his ability to receive credit in the future.
You might have an easier time qualifying for a home loan if you take time to establish a credit history. According to Bankrate.com, you can establish a history in as little as six months if you open an account with a lender that reports to at least one -- but preferably all -- of the three main credit reporting bureaus, Equifax, TransUnion or Experian. If one of the major credit card companies will not approve your application, apply for a secured card. With a secured card, you give the card company a deposit -- usually the same amount as the card's limit -- and use it just like a typical credit card. You can choose to pay the card off monthly or carry a balance and make payments. Just make sure you make your payments on time and keep the balance to less than 25 percent of the card's limit.
- Federal Reserve Bank of Cleveland: Your Credit Score Is a Ranking, Not a Score
- Home Loan Learning Center: Wualifying for a Mortgage
- FHA Home Loans: FHA Loan Qualifying Summary
- Metro Atlanta Down Payment Assistance: Your Credit Score and Down Payment Assistance
- Professor's House: Getting a Cosigner For a Mortgage
- Bankrate.com: Bad Credit Score? Here's How to Fix It
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