Are you in a situation where you do not have good credit but are wanting to buy a home? Your bad credit may be due to always using cash and avoiding credit cards, or you're just starting to live on your own and don't have much of a credit history built up yet. A lack of a credit report may not have affected you in life until the time has come to purchase a home. However, you are not completely out of luck. Here are three tips for buying a house when you don't have good credit:
Select a Smaller Lender
Rather than go to the big banks to get your mortgage, you may be better off working with a local credit unit or a small bank that is willing to take on your mortgage. This is because smaller lenders typically have fewer restrictions on who they can lend money to for a mortgage. Larger banks will have guidelines regarding who they can and cannot give mortgages to, with a credit score playing a big role in the decision-making process.
Ask your agent about local lenders that may work best for your situation, since they may have had a previous experience with a local mortgage lender that they can recommend.
Save for a Large Down payment
The key to securing your mortgage without good credit could be the size of the down payment you make. Not only does a large down payment of 20% help eliminate the need to pay a private mortgage, but it will lower the loan amount and make it easier to be approved.
Saving for a large down payment also shows your lender that you are capable of saving money, even if your lack of credit history doesn't reflect that. It can make a lender feel better about approving your loan.
Use a Cosigner
You can always use the help of a friend or family member that has great credit by having them cosign on your loan. This means that the cosigner is ultimately responsible for paying back the loan if you were unable to pay it, so they are putting a lot of risk on themselves by offering to cosign. The bank looks at this favorably because it demonstrates that somebody trusts you enough with a mortgage to take on the potential risk if you were unable to pay your mortgage.
Speak to your agent for more tips on buying a home without good credit.