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Story:

I'm just after going to my local bank and attempting to get 'prequalified' for a home loan, since the first realtor I called instructed me to do so before we got started.

On trying, I was turned down at my bank due to having effectively no credit history (at least as tracked by the big three). The loan officer I spoke to was nice about it, but nonetheless told me to sign up for a credit card, use it responsibly for six months, and then come back and ask again. Sitting on my hands like that would not be catastrophic, but my current living arrangements largely preclude pursuing romance, gardening, and various other things I would like to do.

I came to my bank (credit union) with:

  • Statements from various financial institutions – including the CU itself – showing I had enough to buy some houses outright
  • 18 years of history at the bank in question (since my family set up a petty cash account for me at a young age)
  • 5+ years history of direct-deposits through my employer (I'm a software developer with about 5 years' experience, paid accordingly)
  • No outstanding debts whatsoever

But without:

  • Recurring bills in my name

I have not rented or held utilities in my name for about 6 years; I currently live with family and although I occasionally contribute, I am not billed directly for utilities or insurance. Family members are unwilling to cosign due to the state budget being in tatters at the moment because of COVID-19. Pay-cuts for state employees are possible and the future is uncertain.

Long story short, I apparently had an outdated understanding of how banks and credit unions now assess trust. I definitely expected to receive a less favorable rate as a result of shakier trust, but not to be politely told to go away. As others have speculated – even having a bad credit score might have been better in this situation than having none. I find myself wishing I'd come out of college with student debt so I could demonstrate recent repayment.


Vital stuff:

I would like to buy a house. I have somewhere between 80% and ~115% of the cost of a house in 'cash' (stock, savings, index funds, etc.) and have statements to this effect. Apparently, I cannot secure a standard home loan due to no credit-score and insufficient credit-surrogates like recent utility-bills. I have no one to co-sign. I would rather not liquidate everything to buy in cash in case something unexpected like a health problem not covered by my insurance were to crop up, or some other large, rapid-onset expense to arise. I would also prefer not put everything on hold for ~6 months in order to establish a credit score; in reality, this could be more like 12 months since few houses go up for sale over winter.

Is there a different tack I could take with my bank or others in town? What specific types of loans (or other stuff) might I ask for and what can I offer to reassure them?


Notes: I can move monies into a holding account if requested by a bank as collateral, and can definitely tolerate a higher interest rate than a standard home-loan. I'm at least intellectually curious what sort of rates I could expect if able to proceed with other sources of leverage. I am aware that my basic choices are (A) give up for a while and build credit, (B) secure a different type of loan at a less-favorable rate, (C) accept the risk of buying in cash and hope nothing bad happens, or possibly (D) lease-to-own or rent-to-own, though I don't believe it's common here, at least in so far as it's advertised.

I can certainly follow the loan-officer's advice wrt. getting and using a credit card, and can likely get some utilities switched over to my name if I made enough noise, etc. With a time-machine, I would go back and do these things in advance to avoid my present situation. I am most interested in learning how/whether I could proceed without 6+ months of delay, and what costs might be associated.

I also found this similar question, but answers do not address other types of loans which might be used to fill a relatively small gap or prevent being temporarily broke.

  • the skinny is a 15 years fixed rate with minimum of 20% down payment to avoid mortgage insurance. Just my 2 cents. :) – John Di Aug 1 at 8:07
  • The problem is obviously just what the bank person said, no credit card. In the great majority of cases, the lenders don't know YOU, they just look at numbers. Really, in this day, not having a credit card is a red flag all by itself. How do you pay for on-line purchases, gas at self-serve pumps, or any number of other things? – jamesqf Aug 1 at 15:56
  • I hate to give you the bad news but there is 0% chance you'll get a mortgage. By all means try every broker, but it won't happen. Since the various credit crunches in the US, the rules are now simply absolute. ("I apparently had an outdated understanding of how banks and credit unions now assess trust" they have no part in it at all, in any way. They just sell on mortgages and there's a totally formulaic answer spat out by the computer. There is no "judgement by anyone".) – Fattie Aug 1 at 15:57
  • @jamesqf I use a debit card for those things. I understand that most Americans are partially under water at all times, but is it so inconceivable that some just aren't (and have never been)? – Slavering Bandersnatch Aug 1 at 16:16
  • @Slavering Bandersnatch: Why should use of credit cards mean that you're under water? I have had credit cards for maybe 40 years. The only time I didn't pay the monthly balance in full was before online banking, when I was in Britain during a postal strike. OTOH, I would think using a debit card leaves you open to problems, such as forgetting how much you've spent and accidentally overdrawing your account. (Plus I get between 2-5% cash back with the credit card :-)) And as Fattie says, not having a card is a red flag for lenders, like not having W2 income :-( – jamesqf Aug 1 at 23:01
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I'd suggest going to speak with a mortgage broker* in your area rather than going to a bank (and particularly not a credit union). Mortgage brokers have relationships with a number of different lenders and are likely to have a relationship with a lender that will do a loan with a non-traditional credit report. Credit unions are awesome for banking but tend to be small enough that it doesn't make sense for them to build up the systems or processes to handle more than the most standard mortgages. A mortgage broker will have access to way more lenders and way more programs than a loan officer at a bank will and should be able to find a lender with a program you'd qualify for.

* Disclaimer- this site is affiliated with a company that I have done consulting work for in the past

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  • The OP should be able to get an excellent rate with 50% LTV, no matter what his credit history looks like. – Andrew Lazarus Aug 2 at 17:31

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