Alternate forms of credit.
Alternate forms of credit. - Buying a home usually requires that you prove to the lender that you can make your payments on time. This is done by reviewing your credit history. But what if you do not have any credit?
Verifying your rental history for the house or apartment that you have been renting can be an alternative type of credit. Usually, many lenders will require 12 months of cancelled checks to show proof that you have made your rental payments on time. Some lenders will allow a verification of rent form to be completed by your leasing company or your landlord instead of requiring the cancelled checks. It is always best to make sure you pay your rent with checks or money orders and save the cancelled checks or money order receipts instead of paying your rent in cash.
Other forms of credit can be from utility payments such as gas, electricity and home phone accounts. Cellular phone payment records can also be used as well.
Even if you have little or no established credit you do not necessarily need to provide proof of alternate credit. The FHA, and VA loan programs for example do not have any minimum credit requirements.
Credit reporting service providers often offer what is known as a Non-traditional credit report. A non-traditional credit report verifies information not normally found on a regular credit report such as rent payments, utility bills, and insurance payments. The reporting service will call all the creditors to verify payment history.
Almost anything that you pay monthly for at least one year, which can be verified through cancelled checks or a statement from a business, can be used as an alternate tradeline. By providing this information, you are showing your lender that you have a history of paying your bills on time.
Many lender banks also accept insurance payment pattern as alternative credit. Some banks require cancelled checks as proof of punctual payments, while others only require a letter from the insurer stating so.
Alternative Credit Grading for 1st Time Homebuyers - If you have lived at home or have no rental history you can still get mortgage financing for purchasing your new home.
Many times being a first time home buyer and having limited credit you are still able to qualify for a home loan. Some lenders will allow you to use alternative credit in order to qualify in these cases. Alternative credit would be using letters from utility companies, phone companies, cell phone providers, non credit reporting loans, renters (verification of rent form, VOR's), etc... These can generally be used to show a positive credit history and as an alternative credit option for 1st time home-buyers with a limited credit history.
One way to qualify for a mortgage with little or no credit history is to provide a sizable down payment. A down payment of 5% to 10% of the purchase price will often qualify you for a mortgage. Be sure to ask you preferred mortgage professional if a larger down payment will help you qualify for a home loan.
Even if you have no credit score because you have never had any credit, there are mortgage programs designed for you.
When using alternative credit to help establish payment history, you will need at least two or three accounts to show your ability and willingness to pay. You will also need statements and cancelled checks for this.
Some sources of alternative credit can be a cell phone, cable bill, utilities, and insurance. Basically, anything that you have a monthly payment can be used as alternative credit. Once you have a 12 month history for these accounts your mortgage broker will created a supplemental credit report through the three credit repositories showing that these payments have been on time for 12 months.
Lenders usually look more favorably on borrowers with no credit than those with below average credit. Borrowers with no credit are usually offered rates compared to borrowers with good credit. However, they must prove they are responsible through what is called Alternative Credit Grading. Lenders will grade your credit based upon accounts usually not found on a traditional credit report.