How to buy a house with no credit

How to buy a house with no credit

Image Source: http://bit.ly/2kbQ3RF

There are plenty of reasons why someone’s credit file may look a little thin. Maybe you’ve always paid cash for things and never had any inclination to use credit cards. Maybe you’re getting divorced and any credit lines you had were in your spouse’s name. If you’re in a situation where you have no credit history at all it’ll be tough to get any kind of loan, especially to buy a home but it’s not impossible if you know what your options are.

As we mentioned before, an FHA loan is a great option for a house loan, not only for those with poor credit history but also for those without one at all. Just keep in mind that if your credit score is below the 580 minimum, you won’t be eligible to put down 3.5% on a home loan. You’ll have to pony up 10% of the home’s purchase price instead, which may mean saving a little longer before you try to buy.

Getting a credit card in your name is another good way to build credit fairly quickly. If you have no credit at all, you may only be able to qualify for a secured card to start. With this kind of card, you put up a cash deposit that serves as your credit line. As long as you’re keeping the amount you spend to a minimum and paying the card off in full each month, that can help you create a positive credit history and generate a credit score.

If you’re cautious about using credit cards, getting a recommendation from your landlord, a utility bill for the past 12 months, or evidence of your paying your insurance premiums are other great ways to prove that you’re responsible about paying your bills on time.

If you have enough money saved up, then paying a larger down payment will also increase your chances. Note that aiming for a loan with a larger bank may not be your best bet – local banks and lenders are more likely to accept your offer.

Renting to own is another option when you lack a lengthy credit history. With this type of arrangement, you make a monthly rent payment to the owner plus an extra amount that’s put into an escrow account. When you’re ready to apply for a loan the money in the escrow account can be used as your down payment or be deducted from the home’s purchase price.

If you’re able to negotiate owner financing instead of going through a bank, your lack of credit may not be a factor. Just make sure to have a lawyer inspect the contract before you move forward with this kind of plan.