Most of us end up getting credit while we’re young and keeping it, at least until we have to buy a home. Maybe you had a starter credit card, maybe you had student loans that you had to repay. Maybe you had If you have no credit but want to buy real estate, you’re going to have to get creative. No credit and bad credit are two very different things – if you don’t have the best credit you’ll want to work on credit repair. It’s not going to be easy but you can do it if you plan ahead.
Identify Alternative Sources of Credit
If you don’t have a credit card, don’t want one, that’s fine – but you’re going to need to identify your alternative sources of credit to use as a trade line. You’re going to have to look more at private mortgages than you would conventional mortgages; these will usually be a bit more flexible and you might even be able to get a better rate. Alternative sources of credit are easy to spot though:
Utility Bills – Pay your power, mobile and cable bill on time each month? You can use these as an alternative form of credit in place of credit cards, car loans or even student loans. It’s important to talk with the billing department of each to see if they can give you a recommendation.
Rent Payments – Have you been an awesome tenant? You might be surprised at how much stock different lenders will put into someone being a good renter. If you’ve been paying 2 months ahead in the same apartment for 5 years, that’s really going to tell a lender something about the kind of borrower you might be.
What is a trade line?
Lenders will tell you that they can use the above things as a “trade line” or something to show that you’re credit worthy. If you don’t pay any of your own bills, you’ve never rented a home and you’ve just had a hard time in general with stuff period, you may not be able to present something as a trade line to get a mortgage. Government loans are also available, depending on if you qualify and your mortgage needs. Sometimes it boils down to talking to lenders face to face and seeing what you can shake loose.
You May Pay More in Interest
Even if you opt to work with mortgage brokers or with a government loan, you may have to pay a premium for being a borrower without an established credit history. If this is how things shake out for you, you may end up paying anywhere from .5% interest up to 2% extra interest premium on top of the rate you would have received if you’d been deemed “credit worthy”. You’ll want to be very careful about what lenders you choose to do business with, shop around and find the one that will offer you the lowest rate.