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Started By
Message
Short/No Credit History Mortgage?
Posted on 2/10/16 at 5:49 pm
Posted on 2/10/16 at 5:49 pm
First time/long time here, have a question. I graduated from LSU recently, have a job here in BR. My lease on my current place ends pretty soon, and I am thinking about looking into buying a house. I have a decent chunk of change saved up for a down payment on a cheap house. My question centers on the implications of having a short credit history as it relates to getting a mortgage loan. Would I be able to get a mortgage with a short credit history? I have had a card in my name on my parents' credit card account for several years and have a gas card. Other than that my only credit history is associated with non-traditional credit such as rent/utilities/etc. I have applied for several credit cards and been denied due to, you guessed it, lack of credit history.
1. Would I even qualify for a loan , even a FHA loan, while having such a short credit history?
2. Should I wait until I have more of a credit history before applying to try and get a more favorable interest rate?
Thanks
1. Would I even qualify for a loan , even a FHA loan, while having such a short credit history?
2. Should I wait until I have more of a credit history before applying to try and get a more favorable interest rate?
Thanks
Posted on 2/10/16 at 8:32 pm to TampaTiger11
It is certainly possible you could get approved, but would probably be required to put a nice chunk of change down. Basically you have 2 pieces of credit (1 being an authorized user revolving account) and a gas card. You need to continue to build credit. Open up a small installment loan. Perhaps do a share secured loan. Continue to build credit.
Posted on 2/10/16 at 8:36 pm to TampaTiger11
quote:
1. Would I even qualify for a loan , even a FHA loan, while having such a short credit history?
Don't do an FHA loan if it's the only thing you qualify for. It's a terrible decision.
Posted on 2/10/16 at 9:18 pm to Powerman
I hadn't heard a negative opinion about the FHA loans. Not disagreeing, but what makes you say that it's a terrible choice?
Posted on 2/10/16 at 9:21 pm to bubbz
Hadn't looked into the small installment loan as a way to build credit. Had just kept applying and getting denied for a credit card (like 5x in 6 months) I'll look into the loan idea.
Posted on 2/10/16 at 9:41 pm to TampaTiger11
Look into a "credit builder loan" at a credit union.
Posted on 2/10/16 at 10:06 pm to TampaTiger11
With FHA loans you get stuck with PMI and you'll have to pay a year of it up front at closing. With the new rules on FHA loans you'll have to redo with another loan to get out of paying PMI. More closing costs to deal with. Additionally the 3.5% down can be misleading. I had my closer work up a few huds and I could bring in less money at closing with a 5% down payment and no PMI required through a credit union. In fact the money I had to bring in at closing wasn't far behind the 10% down payment at the credit union. I went that route. Rate was slightly higher but I started with 10% equity as opposed to 3.5% and no PMI so my monthly obligations are lower as well. FHA loans take longer to close on as well. A lot of government rwd tape.
I'd advise you stay far away from that terrible idea.
I'd advise you stay far away from that terrible idea.
Posted on 2/10/16 at 11:18 pm to Powerman
Assuming the interest rate is not outrageous, it sounds like you found a very good deal. But a bank or credit union offering 95% LTV and no PMI (even on a nonconforming inhouse mortgage) is not typical. So that doesn't make the FHA 203b a "terrible idea" in general terms. It just doesn't match what you got. To get the loan that you got, I'll assume that your credit score is above average and your employment history is established. That's not the situation that the OP is in. But if he can find a product similar to the one that you found, I'd say go for it... without hesitation.
If he can't find that, I'd suggest working with a banker and/or agent who specializes in first time home buyer programs. There is/was a program in my state which combined a state program with FHA, and it was quite lenient on credit score, debt/income ratios, employment history and downpayment source of funds. The FHA MIP is just the cost of doing business on a low downpayment loan. It was there when I got my first FHA loan roughly 30 years ago, and to the best of my knowledge, not much has changed in regard to that aspect of the program. A lot of other things have (like assumability, etc.), I'm sure. But whatever he does, always shop around. Many states have some excellent first time homebuyer programs.
Good luck. And happy shopping.
If he can't find that, I'd suggest working with a banker and/or agent who specializes in first time home buyer programs. There is/was a program in my state which combined a state program with FHA, and it was quite lenient on credit score, debt/income ratios, employment history and downpayment source of funds. The FHA MIP is just the cost of doing business on a low downpayment loan. It was there when I got my first FHA loan roughly 30 years ago, and to the best of my knowledge, not much has changed in regard to that aspect of the program. A lot of other things have (like assumability, etc.), I'm sure. But whatever he does, always shop around. Many states have some excellent first time homebuyer programs.
Good luck. And happy shopping.
Posted on 2/11/16 at 8:13 am to TampaTiger11
I am in a similar situation in that I have just graduated from LSU, got a job, and have been denied twice already for credit cards because I have no credit history... If I have a nice chunk of change saved away in a savings account at a bank, shouldn't I just be able to get a credit card at that bank if I secure it with my savings account? I certainly wouldn't ever spend more than what I have in savings. shite, they can even put a limit on my card for less than that. I just want something to establish credit for when I try to buy a house.
Posted on 2/11/16 at 8:22 am to GeauxPack81
quote:
shouldn't I just be able to get a credit card at that bank if I secure it with my savings account
Not all institutions offer secured credit cards. My wife (GF at the time) had zero credit and was looking to build some. She applied for regular credit card at Capital One and she was denied. I had her immediately call customer service and they set her up with a secured credit card using the same credit pull. She sent them a check for $59 (could've been up to $200) to put in a savings account for collateral against her secured credit card with a $200 credit limit. 6 or 12 months later she applied for a regular credit card with a different institution and got approved with a $2200 limit. Fast forward 5 years later she has 3 cards total (including the original secured one) and a mortgage with a 750+ score. It's a slow process but starting out with a secured card is not a bad start, especially if you get denied for a non-secured card.
Disclaimer: I have no affiliation with Capital One, I just know they still offer secured cards.
Posted on 2/11/16 at 9:21 am to TampaTiger11
As a Residential Mortgage Loan officer here speaking: With people who have short/no credit history, we are able to make them a loan building a credit file from major monthly payments that they make from their accounts. Such as, your rent checks if we can document them, water bills, gas bills, electricity, internet/cable, car insurance, phone, etc.
These accounts would have to be in your name and you would have to show a 12 months satisfactory payment schedule in at least 3 accounts.
2. On an FHA loan building up a better credit score will not earn you a more favorable interest rate. It stays the same and to be honest rates are extremely low right now, so the time you waste building up a better credit score is allowing more time for rates to go up.
These accounts would have to be in your name and you would have to show a 12 months satisfactory payment schedule in at least 3 accounts.
2. On an FHA loan building up a better credit score will not earn you a more favorable interest rate. It stays the same and to be honest rates are extremely low right now, so the time you waste building up a better credit score is allowing more time for rates to go up.
Posted on 2/11/16 at 2:16 pm to Jag_Warrior
quote:
To get the loan that you got, I'll assume that your credit score is above average and your employment history is established.
I suppose. I think when the bank officially ran my credit it was in the 740 range which is above average but nothing spectacular
I had some relatively new lines of credit that were bringing down my score
Posted on 2/11/16 at 2:47 pm to Powerman
quote:
I suppose. I think when the bank officially ran my credit it was in the 740 range which is above average but nothing spectacular
By mortgage standards that is about as high as it goes.
PMI is at its lowest at 760
Posted on 2/11/16 at 7:30 pm to GenesChin
There really should be a filter on who can give information or some kind of verification.
There is so much incorrect in these threads on mortgages. Just like marriage, just because you bought a house doesnt make you an expert
There is so much incorrect in these threads on mortgages. Just like marriage, just because you bought a house doesnt make you an expert
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