Your credit score plays a role in a lot of things in life, especially when you apply for a mortgage loan. If you are young and currently do not have any credit, this could cause problems as you try to get a loan to buy a house. Lenders look at credit when determining whether to approve applications, and it is hard for a lender to approve an application if a person does not have any credit. If you do not have any credit but want to buy a house, here are several things you should know.
Why Credit Matters
The first thing to know is why credit even matters to lenders. Lenders use a person's credit score to determine if the person is worthy to receive more credit. People who are wise with their finances tend to have great credit, and these individuals tend to pay their bills on time. Lenders willingly loan money to people like this, because there is little risk. Lenders are hesitant, though, to loan money to people with bad credit, as they have a history of not paying their bills on time. When a person has no credit, the lender does not know if he or she is creditworthy or not. Because of this, lenders have more challenges when trying to approve applications.
Ways to Prove Creditworthiness Without Credit
If your credit report is empty and shows no credit, you may still be able to prove you are creditworthy by showing a history of payments. For example, could you print a history of all paid utility bills from the past year or two? Could you get a letter from your landlord showing you have always paid your rent on time? Some lenders will use this information as proof of credit, and this could be one option you use to qualify for a loan. You could try to use any types of bills you have consistently paid as proof that you are credit worthy.
Consider an FHA Loan
The other thing you could do is look into getting an FHA loan. This type of loan requires paying a premium, but it is often the easiest type of loan to get for people who do not have credit. To qualify for an FHA loan, you do not need a credit record. As long as you can prove you have paid your bills on time for the last year or two, you might be able to qualify.
There are a lot of benefits to FHA loans, and one of them is that you can typically get a loan to buy a house with a very small down payment. The minimum required for the down payment is usually around 3.5%, which means that if you buy a house for $200,000, you would only need to put $7,000 down. The amount you must put down is often based on credit, but this varies. Additionally, a lot of people benefit from choosing FHA loans because the credit score requirements are not hard to meet, and even people without credit can often qualify.
In exchange for the great terms of FHA loans, borrowers must pay a premium. This includes a one-time premium charge when you get the loan, and it also includes a small monthly insurance premium charge that you must pay for the entire duration of the loan.
If you do not have any credit, you might start wanting to build some. Doing this will make it easier to qualify for loans and credit lines in the future, and you can learn more about this by contacting a mortgage lender who offers FHA mortgages.