NO CREDIT? NO MORTGAGE LOAN!! The Key Words Are Trade Lines.

Lenn: Thanks for the post. It's always appeciated when you weigh in on our side. It's funny how many things are required for a loan these days. Some people just pay cash. Take care.

Hi Lenn,

All too often this is the case. I have specialized in challenged credit for about half of my mortgage career.  I would first suggest FHA as an option as one of the prior Rainmakers mentioned with regard to co-signing.  FHA is the only program that will allow what is known as a "kiddie condo".  If the client does not have alternative trade lines ie cell phone, car insurance, medical bills or something paid on a regular basis, I would send them to the web site credit-land.com.   When a client has a zero credit score just the act of obtaining credit will give them a 600 score in about 3-4 months.  They may need to wait a year or so but at least they are now on the path to home ownership! 

 

It can be a huge shock to a would be buyer who finds out that though they were so proud of never using credit, that lack of a track record is now tripping them up from getting a home loan approved.

Hi Lenn -- while driving, I listen to Dave Ramsey(financial talk show host/author) on the radio and he advocates no credit cards and says there are alternative methods to buying a home for those borrowers with no credit and no credit score.  While, I'd like to believe it is possible for people with income and the resources to purchase, I have yet to hear of any success stories.   I'd be interested in knowing if there are lenders who can work that kind of "magic".   

Then there was 2003 when a lender stood in front of a room of Realtors® and said all anyone needed to qualify for a loan was a trade line for a cell phone and they could qualify for a $400K mortgage. 

I've had success with "borrowing" the parents' credit. Simply have the parents add him as an authorized user to their credit cards. 

I present the confirmation from the credit card companies to the credit bureaus, and voila, credit is established within a few days. Quite simple, really.

The down side of being debt free with no credit cards. Sometimes I think you get penalized if you pay off your cards every month.

About three years ago when I bought my first house (and I wasn't in real estate at the time), I had very limited credit. I had one credit card that I used for 4 years prior to purchasing a home. I never had loans because my parents paid for my college and bought me a car as a graduation gift, which I still drive after 13 years. With limited credit, my lender contacted my car insurance, utility company, cell phone company to verify my payment history. It worked. I got a loan. However, if I never got a credit card, I probably would have ended up like that guy who had plenty of money in the bank, but zero credit to qualify for a loan. Establishing credit is so crucial!

Lenn, assets, income, and CREDIT SCORES are all separate components.  Having a lot of one does not take the place of  not enough of the other.  If a Lender underwites loan according to Conventional, FHA, VA, or USDA guidelines all three play a very important part, and normally no way of getting around them.

I had a family two weeks ago, father, mother, and son who wanted to purchase a house.  They had plenty of income, and lots of assets, but the mother and father did not have good credit, and the son had no credit scores.  I had to tell them sorry, and then give them advice on what they needed to do to be in a position to get a mortgage. 

So, struggling with a multiplicity of monthly payments, even paying the minimums, is better than no debt and lots of money!

Credit is a MUST.... no credit, is just as bad, as no credit. Educate buyers that credit is a must, and what they can do to get credit that will work for them, and not against them.

Sad,  the system is set up that you have to be in debt to get money. 

Lenn, I've run into that problem twice this year. One buyer went with a hard money lender for 6 months and was able to refinance. The other decided to get two  secured credit cards and wait.

I wish they would teach this stuff in school. Parents don't kow much about credit so how can they be expected to teach their kids. Junir Achievement is seeking volunteers to talk about credit in the classroom so if you are interested contact your local JA and suggest it.

The powers to be want us in debt and that is all there is to it. The banks have led us into this cycle of buying more with less reserves and now we are having problems.

Jimmy #37 said it perfectly. It is a trap we can't avoid.  Your buyer shows great restraint, foresight and responsibility by not spending, by saving all he makes - the banks should be thrilled to loan to him - but they don't like it when we are not paying them interest of some kind every month. 

That loan actually can be doen the probelm is there has to be other compensating factors as well as some proof of alt trade lines.

Anyway for what its worth my .2 cents

That is a good problem, but then again the system doesn't work that way with credit. He needs a credit card, rack up some travel miles then come back.

Lenn, I guess we are very fortunate. We have one lender who will underwrite FHA on alternative lines. Rent checks, utility bills, etc.