I like FHA mortgages for my clients who have “bruised” credit because these buyers can purchase a lot of home with as little as 3-percent of their own funds. But what about buyers who have no credit at all?

Well, in the mortgage business, “no credit” is generally better than “bad credit”. Here are a few simple ways I have found to get young borrowers with no established credit into starter homes with relatively small down payments.

Lenders want to loan money to buyers who have proven that they are fiscally reliable. Credit scores are the benchmark for helping them make that determination. However, in lieu of scores, buyers may also provide their loan officer other “non-traditional” proof of their ability to pay their bills on time. Sources of this evidence may come from paid insurance premiums, medical bills, utilities, rentals, and even subscriptions.

Mortgage loan officers, in turn, send that information to a credit bureau to review for inclusion into the borrowers’ credit report. Though these items normally do not provide a sufficient basis for a credit score, they do establish the payment track record that will hopefully allow the mortgage process to continue.

Another easy way to get credit is to “borrow” it from another person. Young buyers often get a parent, grandparent or other family member to co-sign on a home loan. Although this adds another dimension of calculations with respect to income, debt, and credit, it has historically been a safe, effective way to secure a first mortgage.

Depending on the lender, being able to put up a meaningful down payment of their own may be all that’s required for the lender to give leniency on the lack-of-credit issue. A 10-percent down payment relieves lenders of some of the anxiety of lending mortgage money to an otherwise unknown credit user.

If you are young and do not have bad credit, you should not hold back on exploring your mortgage options. You may be able to start building equity in a home of your own much sooner than you once might have imagined.

Timothy Phillips is a mortgage banker and newspaper columnist.  Homebuyers should always consult a professional for guidance specific to their situation.

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