When it comes time to apply for a mortgage, lenders are almost always going to look at a person’s credit history. Many people establish their credit through the use of a credit card or automobile loans. People who do not have a credit history usually find it much harder to take out home purchase loans.
Many lenders are going to be reluctant to work with someone without a credit history since they will worry the person will struggle to make timely payments. Even though it may be harder for people without any credit to qualify for a mortgage, there are some steps to take to increase your changes.
What Can I Do to Qualify for a Mortgage?
Those without a credit history might be able to use their payment history to increase their credibility as borrowers. Demonstrating a history of paying rent, student loans, cell phone bills, and utility payments on time can be shown to a lender to potentially increase the chances of securing a mortgage. Having a large monthly income, little debt, and a good amount of savings will also serve as a benefit.
However, a track record of late payments or negative civil judgments are going to pose significant problems.
Smaller lenders are sometimes more open to working with people who have no credit. A small bank or an independent broker is going to be able to give more personalized attention to people who are seeking a mortgage.
Consider an FHA Loan
Another option on the table would be to look into a Federal Housing Administration (FHA) mortgage. Loans from the FHA let lenders qualify nontraditional borrowers. They are specifically designed to help people with lower incomes get a mortgage, along with first-time homebuyers. A lot of FHA loans have a smaller down payment than traditional loans.
People who are looking to successfully secure a FHA loan must have
- At least one year’s worth of timely rental payments with no delinquency
- A maximum of one 30-day delinquency to outside creditors
- No collection accounts, except if it is related to medical expenses
In addition, people must not let their debts exceed 50% of their total income, and are required to have at least a month’s worth of cash on hand after mortgage costs and down payments are accounted for.
However, the paperwork required to secure a FHA loan can be long and tedious, and the federal government places specific stipulations on what the home can be used for. People who receive a FHA loan are also required to pay ongoing mortgage insurance premiums.
Start Planning Today
Some people looking for a mortgage without any credit decide to acquire a credit card and start building a traditional credit history. This process can be a long and tedious affair, but it makes qualifying for a mortgage a much easier task.
Speaking with an experienced mortgage company is a smart move for those looking to qualify for a mortgage with no credit. Call today to schedule your personal consultation with Community Mortgage, where we can give advice on the different opportunities available for nontraditional borrowers.
Posted in: FHA Loans