How do you know you have no credit? If you have a social security number, I can assure you that you'll have a credit file and FICO score.
It may be low, but that's not all that difficult to fix. Generous and kind mortgage brokers will often assist their clients in building credit for a few months or years, at which point you'll be able to qualify for some wonderful loan products.
One need not have highly extensive credit in order to purchase a home, there are other factors that are equally important, such as income, length of time at job, asset, debt to income ration, etc.
If you would like to discuss how to build your credit further, please feel free to contact me!
One fantastic method is to obtain a secure credit card and use it often, then pay it off in full each month.
A secured credit card with a small $300.00 credit limit will do wonders, and you'll be amazed at how quickly it will build your credit.
Again, if I can assist, please don't hesitate to contact me! I too was in your situation at one point, in fact we all were, so don't despair. It's far better to have limited credit than to have bad credit! Trust me on that.
Start soon, and it would not surprise me if you were able to buy a home within 12 to 13 months, if not sooner! It's not as difficult as it appears, if you have someone willing to spend a bit of time educating you on the matter.
Eric M. Abrams
I commend Eric (below) for offering you some help to better your situation and there's some more good info I've picked up on using credit cards to do so. Paying off a card in full at the end of each billing cycle doesn't raise your credit score as much as leaving a 20% to 30% balance on each card you have.
Why? Because your creditors get paid by the interest they charge you each month. If you pay off the entire amount within the 30 day grace period allowed by most credit cards, the creditor receives significantly less revenue. If they make no money, your grading sent to the credit bureaus isn't as favorable.
Since you want to keep a low ratio b/w your total balances and your total allowed credit, 20-30% is good because it allows your creditors to make a little bit of money, yet you will be at a balance percentage below the point at which it starts affecting your score negatively, which is about 55-60% and above.
The length of time your lines of credit have been open is also factored into your score. So if you have old cards or accounts without balances DON'T CLOSE THE ACCOUNT. Leave them open for as long as you can. A $0 balance is better for your credit history than an account that is no longer open.
I hope this helps!
I have to agree and commend Mr. Eric M. Abrams idea about using secured credit cards. This is one of the things that my Associates and I do when people come to us wanting to get into a Lease-to-Own property but don't have any credit yet. By using secured credit cards SMARTLY, you can have the possiblity of purchasing a home in as little as 8-12 months. These cards should be used for Good....not Evil. :)
There was a time where you could go and buy a couch, TV, stove, etc and use those lines of credit to build yourself up. But now-a-day's, lenders don't really look upon those lines the same way they used to. That's where a secured credit card becomes a very useful tool along with having a good debt to income ratio and the other items Mr. Abrams mentioned.
With that said, here are some of your options:
You make monthly payments to the seller and purchase the house with your own financing at a later date in the future. There are two versions of this. One gives you the OPTION to buy the house on or before the contracted date. The other version obligates you to purchase the house. You can also structure the agreement to apply a portion of your monthly payments to the purchase price. With these methods you get the advantage of locking in your purchase price today and could take advantage of capturing any equity gained if the house appreciates before you close
2) Buy a house "Subject to the existing mortgage"
Have you ever heard of people selling their cars to somebody by letting them take over the payments? This is basically the same concept. It's easier to do if the seller is in an older home with an assumable mortgage but I believe most or all of those loans were created before 1980. However, it's possible with any loan. Most mortgages you come across will have a "due on sale clause" which means that the lender can demand payment in full from the original borrower if they transfer title of the house. That decision is entirely up to the lender and I suggest full disclosure of your intent to the mortgage company for anyone who wants to make a purchase this way.
3) Owner financing
The owner essentially acts as the bank, providing you the ability to make monthly payments on the house. This can be negotiated for you to obtain your own financing later on down the road at a set date, or not. It all depends on the terms you agree to with the seller. In this case the owner either owns the house free and clear or would create a "wrap around" mortgage. If you're buying into a situation with a wrap mortgage I would caution you to make sure the required payments to the underlying mortgage company (lien holder) are made by paying them directly. This can easily be taken care of by setting up an escrow account or by the seller giving your permission to make payments on their behalf to their lender.
If you're currently working with an agent, ask them to do a search for you that includes the "rent to own", "lease option", and "lease purchase" keywords in the listings for option #1. And for option #3 simply ask for a search containing "owner financing".
Good luck! And again, please make sure that you are really ready to purchase a home. Otherwise, defaulting under any of those circumstances I've mentioned above would not only hurt yourself, but the innocent people who put their trust into yourself and the agreement you've committed to.