Home Buying Without a Credit Score...
Last year, I helped my brother (who for privacy purposes we’re going to call Mike on this blog) hunt for his first house. I felt this event worth documenting since until purchasing his home, Mike had never borrowed money and had no credit history. For the sake of brevity, we’re presenting this story in interview style. I do not recommend most people on minimum wage run out to buy a house, but it may be a good time to start preparing for that long term potential.
Mike is a single man with no children just under the age of thirty.
Hi, Mike, would you mind telling us what you do for a living and how much you earn?
I’m a full time cashier at a grocery store. I usually work nights and afternoons. My hourly pay is $12.60 to $13.10 depending on my shift, which means I gross approximately $2193 each month.
How long have you been working there?
Twelve, close to thirteen years. I started as part time at minimum wage, and it took several years to get full time. The company I work for gives a small automatic raise every 9 months until we hit a top pay. I’m making the most I can get in my current position.
What made you decide to buy a house?
A mixture of things. My roommate was moving away, and with rising rents, it was going to cost me about as much to rent as to buy [monthly rent vs. mortgage payment]. I had saved up enough money for a down payment of $10,000 while still keeping enough for a sixth month emergency fund and covering closing costs.
I wanted a stable place to live, since I’d had to move frequently (every couple years or so) due to roommates coming and going. I also like the idea of the mortgage payment being a fixed amount while rent was likely to keep rising.
While this encouraged me to start looking, my dad’s offer to chip in $10,000 towards the down payment sealed my choice. With my own down payment, I was limited mainly to houses in the $80,000 range, and the larger down payment allowed me to look in the $100,000 range. In our area, this was difference between a massive project and move-in ready home.
Did you have any trouble getting a loan?
Yes, some places would not talk to me without a credit score.
Other places would allow me to establish an alternative credit history using utility payments. However, my water was included with my rent, my phone was part of a family plan (which made my line cheaper but the bill was not in my name), and the cable was in my roommate’s name. With just rent and electricity, I didn’t think I had the required three to four sources. Later we learned I could use my car insurance, which had we realized earlier would have saved a lot of time and headaches.
At one point, we tried to use my dad as a co-signer, but the rules have gotten strict. They would approve my dad but not me.
In the end, once I had my three sources for establishing an alternative credit history, I was able to get the loan on my own.
There was another big problem you ran into as well, wasn’t there?
The first house we made an offer on had electrical issues, and the bank would not give us a loan until the issue was resolved. We had some trouble getting the owner to comply, and the offer fell through.
There were several other houses that the bank wouldn’t approve because there were various degrees of structural issues, and not having credit meant my loan was more restrictive. This eliminated a lot of cheaper, fixer-upper properties as an option.
Do you think that might have been a blessing in disguise?
A little bit, yes. It forced me to be patient and find a move-in ready place that only needed a few minor repairs rather than investing thousands to make it livable. The place I bought also turned up in a far more convenient location than most of the others I had seen.
What worked in your favor when you applied for a loan?
Solid work history, good rental history, and no bad marks on my payment history. Also I had a sizable down payment. There are options for smaller down payments, but having 20% allowed me to qualify for a better loan with lower monthly payments.
How much house did you buy and what are your mortgage payments now?
I bought a three bedroom house for $100,000. With $20,000 down, it’s an $80,000 30-year loan. The monthly payment is $616.39, but that includes property taxes.
It’s important to note that the mortgage isn’t the only expense when owning a home. What are some other expenses you had while buying?
There was closing costs. Plus home inspection and termite inspection before the loan is approved. The inspections were about $300, and that’s not refundable. And then there were a number of fees involves with closing. It came out to nearly $2600.
Repairs are on me now instead of the landlord, there’s been a few dollars spent here and there on minor repairs. But nothing major yet.
Why get three bedrooms if there’s just one of you?
For location and room mate potential. I’m enjoying a few months of just me, but I’ll be looking for a room mate soon.
What advice would you have for other first time home buyers?
Make sure to have some bills in your name, even if you’re splitting the cost.
Try not to be in a rush and give yourself as much time as possible to look. The housing market is always changing. If you don’t like what’s available now, something may come open in a month or two.
Establishing credit isn’t something you can do at the last minute. I like not having debts outside my mortgage, but there were sometimes I wished I had a credit score to make the process easier. There were points where I considered getting a credit card, but it turns out I didn’t need it. I was able to get the loan anyway.
Be prepared to encounter unexpected obstacles. Sellers sometimes are emotionally attached to their houses, which can draw out the process.
Mike is a single man with no children just under the age of thirty.
Hi, Mike, would you mind telling us what you do for a living and how much you earn?
I’m a full time cashier at a grocery store. I usually work nights and afternoons. My hourly pay is $12.60 to $13.10 depending on my shift, which means I gross approximately $2193 each month.
How long have you been working there?
Twelve, close to thirteen years. I started as part time at minimum wage, and it took several years to get full time. The company I work for gives a small automatic raise every 9 months until we hit a top pay. I’m making the most I can get in my current position.
What made you decide to buy a house?
A mixture of things. My roommate was moving away, and with rising rents, it was going to cost me about as much to rent as to buy [monthly rent vs. mortgage payment]. I had saved up enough money for a down payment of $10,000 while still keeping enough for a sixth month emergency fund and covering closing costs.
I wanted a stable place to live, since I’d had to move frequently (every couple years or so) due to roommates coming and going. I also like the idea of the mortgage payment being a fixed amount while rent was likely to keep rising.
While this encouraged me to start looking, my dad’s offer to chip in $10,000 towards the down payment sealed my choice. With my own down payment, I was limited mainly to houses in the $80,000 range, and the larger down payment allowed me to look in the $100,000 range. In our area, this was difference between a massive project and move-in ready home.
Did you have any trouble getting a loan?
Yes, some places would not talk to me without a credit score.
Other places would allow me to establish an alternative credit history using utility payments. However, my water was included with my rent, my phone was part of a family plan (which made my line cheaper but the bill was not in my name), and the cable was in my roommate’s name. With just rent and electricity, I didn’t think I had the required three to four sources. Later we learned I could use my car insurance, which had we realized earlier would have saved a lot of time and headaches.
At one point, we tried to use my dad as a co-signer, but the rules have gotten strict. They would approve my dad but not me.
In the end, once I had my three sources for establishing an alternative credit history, I was able to get the loan on my own.
There was another big problem you ran into as well, wasn’t there?
The first house we made an offer on had electrical issues, and the bank would not give us a loan until the issue was resolved. We had some trouble getting the owner to comply, and the offer fell through.
There were several other houses that the bank wouldn’t approve because there were various degrees of structural issues, and not having credit meant my loan was more restrictive. This eliminated a lot of cheaper, fixer-upper properties as an option.
Do you think that might have been a blessing in disguise?
A little bit, yes. It forced me to be patient and find a move-in ready place that only needed a few minor repairs rather than investing thousands to make it livable. The place I bought also turned up in a far more convenient location than most of the others I had seen.
What worked in your favor when you applied for a loan?
Solid work history, good rental history, and no bad marks on my payment history. Also I had a sizable down payment. There are options for smaller down payments, but having 20% allowed me to qualify for a better loan with lower monthly payments.
How much house did you buy and what are your mortgage payments now?
I bought a three bedroom house for $100,000. With $20,000 down, it’s an $80,000 30-year loan. The monthly payment is $616.39, but that includes property taxes.
It’s important to note that the mortgage isn’t the only expense when owning a home. What are some other expenses you had while buying?
There was closing costs. Plus home inspection and termite inspection before the loan is approved. The inspections were about $300, and that’s not refundable. And then there were a number of fees involves with closing. It came out to nearly $2600.
Repairs are on me now instead of the landlord, there’s been a few dollars spent here and there on minor repairs. But nothing major yet.
Why get three bedrooms if there’s just one of you?
For location and room mate potential. I’m enjoying a few months of just me, but I’ll be looking for a room mate soon.
What advice would you have for other first time home buyers?
Make sure to have some bills in your name, even if you’re splitting the cost.
Try not to be in a rush and give yourself as much time as possible to look. The housing market is always changing. If you don’t like what’s available now, something may come open in a month or two.
Establishing credit isn’t something you can do at the last minute. I like not having debts outside my mortgage, but there were sometimes I wished I had a credit score to make the process easier. There were points where I considered getting a credit card, but it turns out I didn’t need it. I was able to get the loan anyway.
Be prepared to encounter unexpected obstacles. Sellers sometimes are emotionally attached to their houses, which can draw out the process.