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I'm in the process of looking at condos/town houses to buy. Based on the location, I know that I will be there at least 5 years.

I am young, and have used cash and debit cards all throughout my life, and so this is the biggest difficulty. The location where I'm moving, it makes financial sense to buy in one sense because the typical rental is 300$ more than my estimated mortgage would be, plus I know I'll be there 5+ years. My current salary is 95k, I have 50k saved for down payment but this increases 4K every month until I buy a home (estimated between 2-4 months). The homes I'm looking at are sweat Equity homes around 340k.

Back to the problems. I have zero debt, college education, rented for 5 years. I don't have any credit scores. Every lender I have talked to (around 5) act like I am some disease cause I don't have a score ("Oh wow!, you need to fix that"). I bank with BOA (4 years) and they basically told me to pound sand cause I don't have a score.

I have started the process of credit cards and a authorized user on my fathers card as well. This is what every lender has told me and then they say call back in 4 months. I would like to get prequalified early because homes move fast here and some for good price.

It seems insane to me that I have 5 years of rental history, a good background and job and yet it seems impossible to get past the "get a credit card and pay it down" talk from every lender.

I have 2 questions (one is more curious because I'm interested in the knowledge that many have on this site).

  1. Is this typical for a young person to have no credit? Maybe some lenders themselves have experience

  2. Second and more importantly, are my options really just pay down a credit card and wait 4 months? I have a person to co-sign as well but lenders told me that is for people with a low income and not for "no credit".

Any info would be great!

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    This is a really annoying problem in the USA! – Fattie Apr 3 '18 at 11:42
  • OP have you in fact tried the "mortgage specialist" companies in your area? Or, just banks per se? – Fattie Apr 3 '18 at 11:43
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    Try smaller, local banks and credit unions. The big-box banks have criteria they have to follow in order to package the loan to investors, which means that you have to have a credit score. A smaller bank might be willing to lend to you directly, especially with a large down payment. – D Stanley Apr 3 '18 at 12:39
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    purely one man's opinion, @DStanley - those sources are simply wrong and/or out of date. – Fattie Apr 3 '18 at 14:50
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    Yes I have recently got a credit card, and have been added to fathers card as a authorized user. Without a doubt Ill get a score within 2-3 months but the right home for a low price might pop up any day now, especially in this area. – pm1391 Apr 3 '18 at 15:11
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Many people have credit cards by the time they are done with college, but it's not unheard of. It sounds like you've been responsible with your money so far, opening a credit card account would help with your credit history/score, if you use it just for some recurring monthly payment like cell phone or utilities that can be an effective way to use it without spending more than you would otherwise.

That said, while some lenders may balk at your lack of credit use thus far, the FHA has guidelines for situations like yours, FHA Loan With No Credit History

The lack of a credit history, or the borrower's decision to not use credit, may not be used as the basis for rejecting the loan application...Some prospective borrowers may not have an established credit history.

The FHA has a procedure in such cases, as described in HUD 4155.1. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from
- utility payment records
- rental payments
- automobile insurance payments, and
- other means of direct access from the credit provider...

FHA loans have some downsides, but might be the best option if you can't qualify for traditional loans due to lack of credit history.

Edit: I just spent 15 minutes on the phone with a mortgage specialist at the credit union I use for all my mortgages. They do not underwrite loans using any sort of alternative credit history, they need to see something come in on a report from the credit bureaus (a typical minimum is 1 credit card, one car/student loan for at about a year). However, a cosigner may make up the difference for you, the issue with a cosigner is that they evaluate the credit score of both parties, so if there's any doubt about the cosigner's ability to pay by themselves you may still get declined since they're likely to completely discount your credit-worthiness due to your lack of credit score. That is to say, typically a cosigner can only help so much. An alternative would be having the other party take on the mortgage and having you only on the title, but that's a hassle (and likely expensive).

It seems to me an FHA route is ideal if values are escalating quickly in your area and you don't want to put 20% down. Otherwise establishing a credit history and saving up for a while longer would be optimal.

No idea if my credit union is typical. If you find a lender that will work with you on a conventional loan given your current situation, just make sure to compare rates with other options, as I'd imagine they charge a premium.

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    Thanks for your answer, I've looked into this although I'm not fond with the insurance premiums on top of FHA loans. – pm1391 Apr 3 '18 at 12:00
  • @pm1391 Agreed, but are you planning to wait until you have a 20% down payment? Your 50k + 2-4 month timeline suggested you'd have less than 20%, so you'd have PMI on a conventional loan. – Hart CO Apr 3 '18 at 13:43
  • Getting to 20% isn't a hard deadline for me. I would much rather comfortably put 15% down then pushing myself to put down 20%. I believe some PMI on conventional loans can be removed after 3 years or so, so I'm not worried about the PMI. After all, I am looking at sweat equity houses so I want a little extra cash at first to get started on improvements as fast as possible. Could you speak to co-signing? Is it really about income and not about scores? (sorry to ask questions in comments) – pm1391 Apr 3 '18 at 14:04
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    @pm1391 Updated answer after a call with my credit union, a cosigner helps if they are perceived to be likely to pay, that's based on credit score and income, same things that would qualify you for the loan. – Hart CO Apr 3 '18 at 14:51
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    @Fattie Yeah, I dont want to co-sign either, if credit unions don't come through I'm afraid Ill have to wait the 3 months. Even though it sucks, I would rather be patient and get the right rate before jumping into a bad commitment. Thanks for the advice – pm1391 Apr 3 '18 at 15:15

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