Loans Answers

Best way to get a house

Question: Hi all, I am 25 and have begun shopping for a house. Upon trying to get prequalified for a loan, I realize how important having credit is.. I have none, and no credit information of any kind (good, bad or otherwise) on my credit report. Also I haven’t had bills in my name so they couldn’t establish credit that way. I am now building credit, which loan people tell me will help me get a loan in a years time.

Now, I have parents (divorced) who can both obtain a loan to “buy me” a house (tho I’d pay everything). My question is, what is the best way to do this so that eventually (when I can get refinancing) I would own this home, and be able to sell it at a profit and not have to pay capital gains tax since I would be the one living there?

I am not buying this as a slam dunk turnaround investment, so I might be there well over 5 years. I just want to know a way where neither of my parents are adversely affected, and I end up the owner/sole mortgage payer of the house.

Thanks for any information.

Answer: Don’t have them buy you the house. If they did, you’d have to redo the paperwork in a year when you put a loan in your name. Instead, have them co-sign on the loan. their credit is still used for teh approval, but the loan is in your name. the house is in your name. And, the credit raising is in your name (but the credit destruction woudl affect them too if you default. SO, don’t screw your parents and make sure you pay this loan on time) Yes unfortunately having “no credit history” is not much different than “bad credit history” in the eyes of the lenders. The credit reporting agencies use a formula called “FICO Score” to calculate your credit rating. It is based on payment history, amount owed vs credit outstanding, length of credit history, types of credit, recent activity (inquiries, new accts)

Even having a credit card with a zero balance that you rarely use (but not too many) can help your credit score. Or even a sears or a gas card can help again even if you never use it. But don’t go and open up a bunch now because that may count against you in the “recent activity” column.

So if you are buying soon you really can’t build up this score overnight. Yes as the other person said, having the folks co-sign on the loan will work, assuming they have good credit history. But then the loan will be in your name, and make sure to get all the utilities, etc. in your name. After awhile maybe open a credit card even if you never use it (just pay it all off every month if you do). That will start building up your credit history and if you pay everything off on time, etc it will go up and up. Use the “automatic bank acct deductions” for all your bills if you can at all manage it, as you don’t want a “late payment” to hinder your credit rating just because you spaced it off or forgot to put a stamp on the payment envelope, etc. Then in a few years if you refinance or go to another home you will have hopefully built up your own history and can get the next loan without any help.

I went thru the same thing– right out of college I had never had a loan or a credit card etc. So I had “no credit history”. When I got my first apt and got all the utilities had to put down a “deposit” etc. But then after a few years of paying all the bills on time, opening up a couple credit cards, etc. paying them all in full every month, next thing the credit card cos raise my credit limit to 5 figures without me ever carrying more than $200 on the card, etc. In maybe 3-4 years I went from “no credit history” to FICO score of 800+ (300 is min, 850 is max) without ever really having borrowed any money, but just a history of paying the bills on time. Just “reverse engineer” the way the lenders thing and beat them at their own game and you will do fine.

Do a google search for “FICO Score” and you will probably turn up a bunch of stuff on credit

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Filed under: Bad Credit