If you are looking to buy a home and are applying for a mortgage, you’re going to find that lenders use the your credit history as a major factor for qualification. This can be an issue for those that have a very thin credit history, and there could be several reasons why you might have a thin credit history.
Maybe you’ve avoided applying for any credit cards due to a misconception that they can be difficult to manage, or maybe you’re simply a younger person that hasn’t been out in the world on his or her own long enough to develop a strong credit history. Whatever the case might be, don’t worry too much about your thin credit history – it’s better than having a bad credit history, after all! And you still may be able to qualify for a mortgage, even if it will be a slightly more difficult process. The following are a few options that you have for buying a house with a thin or non-existing credit history:
Pay in CashYour credit history won’t matter much if you’re able to pay for a house in cash. However, this is rarely possible for most people.
Build Up Your CreditIf you can wait a year or two, then begin building up your credit. You can do this by signing up for a credit card or two and using them responsibly by paying off the balance in full and on time every month. You can also take whatever bills you have and have them automatically withdrawn from your bank account every month to ensure that they are paid on time and in full. Of course, it does take time to build up your credit, so if you’re looking to buy a home now, then this isn’t the most attractive option.
Provide Alternate Sources of CreditLenders will often work with you if you have a thin credit history by looking at alternate sources of credit. The first thing they often do is to check with your previous landlord to make sure you have made your rent payments on time. You can also supply proof of utility payments (as long as they are separate from your rent), cable payments, phone payments, any type of insurance payments (as long as they are separate from your employment), school tuition payments or child care payments for the lender's consideration.
Apply For a FHA LoanThe Federal Housing Administration (FHA) provides loans that are designed to help first-time homebuyers and lower-income individuals to purchase homes. They will use alternate sources of credit to help you qualify for a FHA loan and may only require as little as 3.5 percent for the down payment. However, there are a few catches to be aware of. First, there’s more paperwork involved and it often takes longer to go through. You’ll also be required to live in the home you buy, as opposed to buying it for investment purposes. Then there’s the mortgage insurance premiums and fees you’ll likely have to pay. The house that you are looking to purchase will also have to meet minimum standards, which means you may be denied if you’re looking to buy a distressed home with the intention of fixing it up.
Having a thin credit history can be problematic when it comes to obtaining a mortgage so that you can buy a home. However, this shouldn’t prevent you from doing so. For more information about buying real estate, be sure to contact us at Carrington Real Estate today.