Looking to buy your very first home? Unfortunately, if you don't have an established credit history, getting approved for a conventional 15- or 30-year mortgage can be a challenge. The good news, however, is that there are financing options available to first-time home buyers without established credit. By taking the time to get to know your options and how to pursue the one that's best for you, you can be on your way to home ownership in no time.
A Note About Payment History
First of all, understand that even if you have limited or no formal credit history, you may still have information that can be used to prove to a potential lender that you're responsible and dependable with your money. For example, if you have student loans that you've been paying and your payments have all been on-time, you can show this to a potential lender as a means of establishing payment history. The same goes for rental history; if you have a landlord who is willing to vouch for the fact that you've never been late or short on a rental payment, this can help increase your chances of being approved for a loan.
More than likely, your best bet for getting approved for a mortgage with no credit history will be applying for an FHA mortgage. These loans are backed and insured by the Federal Housing Administration, and the requirements to be approved for one of these loans are much more lenient than with most other home loan options available. Furthermore, with an FHA loan, you can enjoy the benefit of putting as little as 3.5% down on your new home, making this an ideal choice for first-time buyers regardless of their credit situation. Just be aware that with an FHA loan, you will spend a little more on your monthly payment because you'll be required to carry mortgage insurance until you've paid off at least 20% of your loan balance.
Another option worth exploring for mortgage financing is to put in applications with smaller lenders. Sometimes, people with no credit will have better luck with a smaller agency who is willing to sit down with them, take a look at their finances, and potentially look past the lack of credit history.
By following these tips, you can turn your dreams of homeownership into reality by getting approved for your first mortgage! For more information, contact a business such as SWE Homes.