Mortgage with no credit
May 24, 2012 8:23 AM Subscribe
According to the loan officers and mortgage brokers I've talked to, I have no credit score at all. (When I try to use the free credit report sites, I get similar results.) Is there any way for me to get a mortgage right now, or am I wasting time looking?
I'm thinking of buying an apartment in the neighborhood where I currently rent. I can put 20% down, and the places I'm looking at (at the low end of the market) are around double my annual salary, with a monthly payment (including taxes and association fees) that is approximately equal to what I'm currently paying for rent. However, despite ten years of renting and paying utilities in my own name, I do not seem to have any kind of credit rating (I haven't ever had any of the usual loans—car, school, credit card.)
Will any lender give me a mortgage—under any terms—in this situation, or should I just postpone my plans to buy for a couple of years and (try to) take out a credit card to build credit?
I'm thinking of buying an apartment in the neighborhood where I currently rent. I can put 20% down, and the places I'm looking at (at the low end of the market) are around double my annual salary, with a monthly payment (including taxes and association fees) that is approximately equal to what I'm currently paying for rent. However, despite ten years of renting and paying utilities in my own name, I do not seem to have any kind of credit rating (I haven't ever had any of the usual loans—car, school, credit card.)
Will any lender give me a mortgage—under any terms—in this situation, or should I just postpone my plans to buy for a couple of years and (try to) take out a credit card to build credit?
The first thing you need to do in order to be taken seriously when making an offer to buy any property is get a pre-approval. So if you can find a lender that will give you a pre-approval letter, there is a good chance they will give you a loan once you have had your offer accepted and started your application.
In your situation I would go into a branch of a reputable, locally-based bank and talk to someone there about your situation. They are more likely to take the specifics of your situation into account rather than simply shutting you down based on your score, like might happen if you apply to big national lenders online. Whatever you do, stay away from small, unknown, fly-by-night mortgage companies.
posted by rocketpup at 8:43 AM on May 24, 2012 [1 favorite]
In your situation I would go into a branch of a reputable, locally-based bank and talk to someone there about your situation. They are more likely to take the specifics of your situation into account rather than simply shutting you down based on your score, like might happen if you apply to big national lenders online. Whatever you do, stay away from small, unknown, fly-by-night mortgage companies.
posted by rocketpup at 8:43 AM on May 24, 2012 [1 favorite]
You need to call around to the local banks and ask if they do manual underwriting. This is the secret phrase described above as the banks that keep their loans on their own books.
You don't say what state you are in, but my favorite financial guy Dave Ramsey touts and endorses Churchill Mortgage. They do this sort of underwriting and should be able to help you out.
posted by deezil at 9:01 AM on May 24, 2012 [1 favorite]
You don't say what state you are in, but my favorite financial guy Dave Ramsey touts and endorses Churchill Mortgage. They do this sort of underwriting and should be able to help you out.
posted by deezil at 9:01 AM on May 24, 2012 [1 favorite]
I think the main issue would be what kind of rates you would be offered as a creditless borrower - I'd imagine the interest would be suboptimal. If you have no defaults/bad marks on your slate, you can build a good to great credit score in about 2 years using a shitty credit-building card with an embarrassingly low limit. These cards are tailor made for people like you and are not particularly difficult to get.
posted by elizardbits at 9:27 AM on May 24, 2012 [1 favorite]
posted by elizardbits at 9:27 AM on May 24, 2012 [1 favorite]
When we started the process of purchasing our home 18 months ago, I also had no credit. I had previously had student loans and car loans, but had paid everything off which I erroneously thought would make my credit score extremely high, not non-existent. My lender would only give us a pre-approval letter based on my husband's income because he had an existing credit history.
My lender recommended I apply for a secure credit card through my credit union: I already had a history with them so they were comfortable issuing a card to me, it had a small limit and was tied directly to my checking account. After a month or so of having and using the secure card, I actually had a (very high) credit score and lenders were more than happy to pre-approve me to $400,000 (yikes!).
posted by rhapsodie at 9:40 AM on May 24, 2012 [2 favorites]
My lender recommended I apply for a secure credit card through my credit union: I already had a history with them so they were comfortable issuing a card to me, it had a small limit and was tied directly to my checking account. After a month or so of having and using the secure card, I actually had a (very high) credit score and lenders were more than happy to pre-approve me to $400,000 (yikes!).
posted by rhapsodie at 9:40 AM on May 24, 2012 [2 favorites]
I arrived in the US and had no credit history. It was a huge pain, but using a low-limit credit card, and an outrageous rate car loan, my credit score was good enough to buy a condo within 18 months. This was pre-housing market/credit meltdown, but it is definitely possible to build a credit history in a short time if you don't mind sucking up some awful rates in the short term.
Whatever credit card you sign up for, keep it forever. Even if you don't use it, or just use it once a year. Part of credit history assessment is to look at the longest history credit line you have. If you keep closing credit lines and opening new ones, you never have anything with a long history. Don't try and sign up for store or multiple credit cards, as each refused credit application is a small ding on your rating. Choose carefully (a credit union is a great place to start) and open one or two lines, then diligently pay them each month.
posted by Joh at 9:46 AM on May 24, 2012
Whatever credit card you sign up for, keep it forever. Even if you don't use it, or just use it once a year. Part of credit history assessment is to look at the longest history credit line you have. If you keep closing credit lines and opening new ones, you never have anything with a long history. Don't try and sign up for store or multiple credit cards, as each refused credit application is a small ding on your rating. Choose carefully (a credit union is a great place to start) and open one or two lines, then diligently pay them each month.
posted by Joh at 9:46 AM on May 24, 2012
Oh, and this article I will now keep around for saying that you don't need debt or a credit score to buy a house or a car.
posted by deezil at 9:55 AM on May 24, 2012
posted by deezil at 9:55 AM on May 24, 2012
It is possible to get a mortgage in your circumstances. Deezil mentioned manual underwriting, and that's what you need to seek out.
Start with a community bank or credit union in your area. Ask to speak with a mortgage officer about a manual underwriting loan. If you are told they don't do that, ask if they know who might in your area.
This is important: Do not try to open any car loans, credit cards or any other lines of credit in the time you're waiting to apply for and get underwritten for a mortgage. This is a rule that anyone applying for a mortgage must follow; opening a new line of credit will throw your ratios out of whack, and if computer says no, you'll be out of luck and won't be able to close. Yes, it is strict, but wait until you've closed on your loan before you get a new credit card or finance a car--or even make big purchases with cash.
posted by FergieBelle at 10:51 AM on May 24, 2012
Start with a community bank or credit union in your area. Ask to speak with a mortgage officer about a manual underwriting loan. If you are told they don't do that, ask if they know who might in your area.
This is important: Do not try to open any car loans, credit cards or any other lines of credit in the time you're waiting to apply for and get underwritten for a mortgage. This is a rule that anyone applying for a mortgage must follow; opening a new line of credit will throw your ratios out of whack, and if computer says no, you'll be out of luck and won't be able to close. Yes, it is strict, but wait until you've closed on your loan before you get a new credit card or finance a car--or even make big purchases with cash.
posted by FergieBelle at 10:51 AM on May 24, 2012
Check out credit unions for sources of Manual Underwriting. It may take a bit more effort, but being debt free is a pot of gold at the end of the rainbow, so I doff my cap to you for being so.
posted by Ruthless Bunny at 11:36 AM on May 24, 2012
posted by Ruthless Bunny at 11:36 AM on May 24, 2012
I'd suggest talking to your loan officer as to what to do....I'm also applying for a loan and my officer has been incredibly helpful.... several people above mention getting a credit card (good if you pay it off on time) but others mention that will show up as a credit check (bad). So see if your loan officer has recommendations.
I would say it's possible - the lack of credit is definitely a point against you, but the high earnings:debt ratio (since you don't have anything to pay!) is a point in your favor. I don't think your chances are super-awesome definitely 100%, but I don't think they're hopeless.
There are definitely loans available out there for people with poor or no credit - they will probably have you shell out a bit more at closing for mortgage insurance, though....however the good news is that these loans don't require you to put a full 20% down, so you probably already have that saved.
posted by Lt. Bunny Wigglesworth at 12:17 PM on May 25, 2012
I would say it's possible - the lack of credit is definitely a point against you, but the high earnings:debt ratio (since you don't have anything to pay!) is a point in your favor. I don't think your chances are super-awesome definitely 100%, but I don't think they're hopeless.
There are definitely loans available out there for people with poor or no credit - they will probably have you shell out a bit more at closing for mortgage insurance, though....however the good news is that these loans don't require you to put a full 20% down, so you probably already have that saved.
posted by Lt. Bunny Wigglesworth at 12:17 PM on May 25, 2012
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It is possible, however, that you may have better luck with an institution that keeps its loans on its own books, or which has programs for borrowers with troubled credit histories (not that yours is troubled as in bad, but obv. having no credit history is a problem). I'd try a few small community banks or credit unions in your area, and also look to see if your state or municipality has any agencies that specialise in loans for affordable housing or first time buyers. Even if you don't fit their parameters, they may have a better sense of lenders in your area willing to work with someone with your profile. Also, I'm not 100 percent sure what the FHA guidelines are for someone in a situation like yours --- as a rule FHA guidelines are more flexible than Fannie Freddie, but I don't know if they can accommodate you or not.
Worth a shot now I'd say, anyway, tough to say what the interest rates will be in two years time...
posted by Diablevert at 8:42 AM on May 24, 2012 [2 favorites]