While most people dream of purchasing a home of their own, the path to achieving that dream can be very different for some. The most popular route to homeownership has traditionally been to apply for a mortgage through a bank, credit union, or mortgage broker. If the buyers and the home being purchased both meet certain criteria, the loan is granted, the purchase process soon closes, and the deed is issued.
Some buyers, however, may need or want to choose another route to homeownership that doesn't involve a traditional lending option. If you are ready to purchase a home, here are some reasons to explore no-credit home purchase options.
When past decisions lead to non-existent credit ratings
There are many reasons to applaud those who insist on cash-flowing their lives without taking on consumer debt. Unfortunately, an absence of credit history, good or bad, can make it very difficult to obtain financing for a major purchase, such as a home.
Most banks and other lenders utilize an automatic mortgage underwriting process that utilizes information from three main credit reporting agencies to decide whether mortgage applicants are creditworthy.
When past life events lead to low credit scores
Another situation that can cause prospective homebuyers to seek out no-credit financing is when past life events have contributed to credit scores that are too low to qualify for a traditional home mortgage. Illnesses, job losses, divorce, and many other life events can interrupt the flow of income and cause families to miss or be late on debt payments. When this occurs, the damage can take years of stable income and on-time debt payments to improve enough to meet lender criteria for a home mortgage.
When renting to own offers more benefits than an immediate purchase
Even buyers who might be able to qualify for a traditional mortgage may decide to opt for a no-credit financing option, such as renting to own a home or a lease-purchase arrangement. This type of situation often occurs when the prospective buyer is already a tenant in the home being purchased or when the buyer has a reason for wanting to wait for a certain period of time before seeking a home mortgage.
For example, someone who is rebuilding their credit after a bankruptcy or divorce might choose a lease purchase or rent-to-own agreement, instead of a traditional home purchase with a mortgage.
These are just a few of the reasons to consider buying a home with no-credit financing. To learn more, prospective buyers should consider scheduling a candid discussion about their buying situation with a knowledgeable real estate professional in their area.