Mortgage Loan Programs for people with no credit history do exist and many of these programs are very affordable. This article was written to explain what options you have for buying a home today, even if you have not established a credit history or credit score.

Home buyers may fear qualifying for a home loan if they do not have a credit history or have a very limited credit history. The main reasons for not having a credit history are:

1. Too young to have established credit - new college graduates or young professionals may fall into this category
2. Fear of credit from prior experience - some people who have gone through a bankruptcy or other financial trial may have gone to a "cash-and-carry" mentality and thus don't have traditional credit
3. Immigrant status, language barriers - some homebuyers who are not fluent in english, have not been in the country for a long enough period of time or have not established legal residency may have this problem as well.

If you fall into one of the above categories and think that you have no options, that couldn't be further from the truth. What's more, many of the options available to you are very affordable. So what's the catch?

Non-traditional credit is the means by which this kind of loan is approved. It involves tracking and verifying rental history, payment history for cable tv, cell phones, utilities, etc. and the lender provides an opportunity to use your track record on items that don't traditionally report payment history to the credit bureaus. There is no credit "SCORE" requirement.  Here is a list of programs which allow for this type of underwriting:

1. FHA - The Federal Housing Administration (FHA) insures a mortgage loan program and the program has no credit score requirements. While there seem to be less loan officers every year who understand the oldest and most-used first-time homebuyer loan program, it doesn't change the truth that FHA provides a wide range of approvals for people with a good track record but no "traditional" credit or scores.
2. Bank Loans for CRA requirement - The Community Reinvestment Act resulted in a requirement that Federal Banks lend money to underserved clients and areas of the community in which the bank operates. As a result, program guidelines exist that allow for perhaps a broader approval. Many of these programs provide reduced interest rates AND no or very low down-payment options. Some programs require the person buy in a particular area or that the person's household income not exceed a percentage of the average for the area.  Check with a federal bank like Wells Fargo or Bank of America to learn what programs they offer.
3. Sub-prime loans - A sub-prime loan is typically thought of as financing for people with less than perfect credit. While non-traditional credit doesn't mean "bad" credit, these lenders can use the same guidelines for approving an applicant. These loans typically carry a higher rate of interest, especially for low or no-down-payment financing.

Even if you are not looking to purchase today, the best time to start talking to a mortgage lender is about 6 months prior to being at the time you want to buy a home. Talk to a mortgage loan officer about your goals, and have your credit report analyzed and explained to you. By understanding what you can do to increase your loan program choices over the next 6 months you will have better, more affordable options when you are ready to buy a home.

©2006 Ken Stampe

Ken Stampe is a Mortgage Loan Originator, Mortgage Author and Mortgage Loan Officer Instructor living in Dallas, TX. Ken provided his first client a mortgage loan in 1996 and writes about home buying and mortgages to help clients make smart home mortgage loan decisions. Contact by email Ken@MortgageLoanDallas.com

What resource do SMART home buyers use?... Mortgage Calculator Bank.com