Many young renters and workers are increasingly interested in buying their first home. But if you're a first time homebuyer with a limited credit history, how can you possibly manage to achieve this part of the American Dream?
In fact, it is still more than possible. To help you get there, here are a few tips on getting that all-important mortgage.
Build Your Credit
The easiest way to get a mortgage when you don't have a long credit history is to spend the time to build one. This method can be fruitful, since you can go about your business and maybe even save up more money for a down payment in the meantime. But it requires patience and a hope that in a few years, the homes you are interested in will still be abundant on the market.
Open a few different types of credit, such as a revolving credit card, a car loan, a personal loan, or student loans and maintain a good history of on-time payments. The effect will add up to the start of a good score within a year or two.
Get a Co-Signer
If you don't want to wait years to build up a history, you could benefit from having a family member or good friend co-sign the mortgage for you. The upside is that their good credit history and additional income can make it much easier to buy a home.
The downside is that they will share the rights and responsibility of the mortgage and the property with you. This option is best kept to only the best of relationships and should be entered into with a clear contract between the two of you.
No Credit Options
There are a few prepared options for mortgage seekers with little or no credit. The Federal Housing Administration, for example, offers the best arrangement for first time buyers. Because FHA loans are designed to help encourage home ownership, they generally have lower standards and require less of a down payment than other loans.
Be aware that you may have additional fees for a no credit loan. But if it gets you where you need to be, this is often an acceptable arrangement.
By knowing what your options are, you may find that home ownership is less out of reach than you thought. To learn more about any of these options, talk with services such as SWE Homes.