CAN YOU BUY A HOME WITH A LIMITED CREDIT HISTORY?

Credit history is a very important part of the mortgage approval process. It is one of the first places a lender will look to measure your ability to pay debts over time. So, what happens if you don't have an established credit history? The good news is, it's possible you can still get a mortgage. However, there are challenges you will need to overcome and, there are no guarantees you will be approved. Not all lenders offer these types of financing terms and lenders who do, will have alternative and additional requirements as these are considered higher risk loans.

Below are common "credit alternatives" a lender may require, to determine your ability to pay:

Canceled rent/mortgage checks: If you are a first-time homebuyer or a current homeowner paying a private mortgage, canceled rent/mortgage checks are a very good way to provide proof of ability to pay. Traditionally, the underwriter will ask for a minimum of 12 and up to 24 months of front and back canceled checks. Keep in mind, further verification may be required from your bank.

Higher down-payment: For purchase loans, a higher down-payment shows the lender you are willing to put your own money into the home and share the risk associated with a potential default. The larger the down-payment, the less risk to the lender and more equity to work with to re-coop a loss, should you default.

Job history: The longer you are with an employer, the better. Job longevity shows responsibility and stability. Lenders prefer 2 years or longer with the same employer and 3 -5 years in the same line of work.

Reserves: Reserves are savings in the amount of your anticipated new mortgage payment. A lender could require anywhere from 6 to 12 months of mortgage payments saved in the bank prior to loan closing. Depending on the type of mortgage and how much credit history you have, reserves are another safety net for the lender to hedge a default.

Non-traditional credit: Another way to provide a lender with your ability to pay is by showing timely payments with non-traditional credit such as utilities, cable, renter insurance or medical bills. Although, these types of debts are not listed on a credit report, proof of consistent, timely payments will help.

Bottom line: Although having a limited credit history will add to the challenge of obtaining a mortgage, it's still not impossible to obtain a mortgage using alternative ways to prove your ability to pay.

Check with your loan officer who will be able to guide you to available programs based on your needs.

Article by Source: Mortgage Market Guide

INTRODUCTION
A great lender we would love to introduce you to is;

Suzanne Söderberg, CDLP

NMLS #: 501875

Sr. Mortgage Loan Originator

Benchmark Mortgage

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