Q: I am a 44 year old man who has never had credit. The last time I financed anything was in 1991. I pay all my bills (including rent) on time. Now I want to purchase a home, but I have no credit score. What can I do and are there programs to help first time home buyers like me?
A: This is a two-part question related to both credit and home-ownership programs. Let’s tackle the credit dilemma first.
To establish a credit history, and generate a FICO credit score, you need to have at least one credit account that is reported to the credit bureaus, and that account must be opened and tracked for at least six months. So start by applying for a single national brand credit card, such as a Visa, MasterCard or Discover card, before you apply for something major like a mortgage.
If you can’t get a regular card, open a secured credit card. That’s where you put up a certain amount of money, perhaps $500, into an account. That $500 essentially becomes your credit card limit on the secured card. Pay the secured card on time, and after those payments are reported for six months, you’ll meet the minimum requirements to get a FICO credit score.
Federal/National Home-ownership Programs You Should Know
Regarding homeownership programs, there are scores of programs available for first-time buyers. I don’t know what state you reside in, so I’m unable to tell you of specific local programs. However, I can tell you about a handful of federal home loan programs, and point you in the right direction to find state and local options in your area.
FHA Loan Programs
With the help of the Federal Housing Administration (FHA), you can buy a home with just a 3.5% down payment. The FHA itself doesn’t lend you money. Instead, it “guarantees” your mortgage.
This means that the FHA promises your lender – either a bank, credit union, mortgage banking company, or another institution – that if you default on the loan for any reason, the FHA will step in, pay off the mortgage, and take over the house. With FHA backing a loan, lenders are willing to make mortgages available to borrowers with modest down payments.
To qualify for an FHA loan, you need to have a steady income, one that is sufficient to support your mortgage loan.
In fact, because the FHA has no maximum income limits, FHA loans are available to practically all working home-buyers. The house you select must be up to code and “suitably located as to site and neighborhood.” Of course you must come up with the 3.5% down payment and your closing costs. On this last point, the FHA is quite lenient. Your down payment doesn’t have to come out of your own pocket.
You can receive gift funds from family members, housing grants from city housing programs, or down payment assistance from non-profits and other entities. Also, you can roll your closing costs into your mortgage, so you pay those expenses over time, rather than all upfront. Another advantage of FHA-backed loans is that they frequently carry lower interest rates than conventional, or non-governmental, mortgages.
Fannie Mae’s HomePath Program
The national mortgage programs offered by government-sponsored entities such as Fannie Mae and Freddie Mac, hold particular appeal for many first-time homebuyers. Fannie Mae (http://www.fanniemae.com) is a government-sponsored entity created in 1938 to help make homes more affordable.
Fannie Mae doesn’t lend you money. Instead, it invests in mortgages that lenders originate, and then Fannie Mae sells those loans to investors on Wall Street. With Fannie Mae’s HomePath Program, home buyers currently receive assistance totaling up to 3.5% of the final sales price. The money provided by Fannie Mae can be used to pay for your closing costs, or for new appliances for a home.
Finding State Programs
In addition to the federal programs, there are numerous state programs directed at first-time home buyers. Start by turning to State Housing Financing Agencies (HFAs). These are state-chartered authorities established to help meet the affordable housing needs of the residents of their states.
Although they vary from state to state, most HFAs are independent entities that operate under the direction of a board of directors appointed by each state’s governor. Their reason for being is to help would-be homeowners like you, so they can often tell you about incredible housing and development programs that you never dreamed existed.
There is a National Council of State Housing Agencies (NCSHA) active in Washington D.C. to keep the issue of affordable housing high on the government’s list of national priorities. Housing Finance Agencies and NCSHA (http://www.ncsha.org) can help you. Go to their website to find your own state housing agency, and then contact that agency to learn about current first-time homebuyer programs.
Housing Redevelopment Offices
In addition to state housing finance agencies, contact the Housing and Redevelopment Office in your state, county, or city. Members of the National Association of Housing and Redevelopment Officials (NAHRO) (http://www.nahro.org) champion the cause of adequate and affordable housing for all Americans – especially those with low and moderate incomes.
Be mindful that state housing agencies and redevelopment offices across the country can use lots of different names. One might be called a “Housing Finance Agency,” as is the case with the Vermont Housing Finance Agency, while another one is dubbed a “Housing Development Authority,” as is true of the Virginia Housing Development Authority. Any agency with the name “Home” “Housing,” “Community Development,” “Mortgage Finance” – or similar words – is a good place to inquire about home-buyer assistance programs.
You’ll have to do a bit of homework to track down county-initiated or county-sponsored home-ownership programs that can help you as prepare to go from renting to owning. To make your job easier, though, here are two organizations you can contact to locate county housing initiatives in your area:
• The National Association of Counties; visit their website at: http://www.naco.org. Click on “About Counties” then click “Find Counties” to locate a county of interest.
• The National Association for County Community and Economic Development; visit their website at: http://www.nacced.org and click on “County Websites” to find links to certain member counties, as well as cities and other development agencies near you.
Finally, To learn more about other potential grant money, visit: Downpaymentsolutions.com It’s one of the single-best resources I’ve come across to help buyers, sellers, lenders, and others learn about down payment assistance programs via charities.