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Alternative credit grading for first time home-buyers

If you have lived at home or have no rental history you can still get mortgage financing for purchasing your new home.

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.

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.

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.


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