In the past, prospective buyers didn’t have to have "commercial" credit sources to be eligible for a mortgage. However, given the current restrictive lending environment, most loan products do require that you have 3 or 4 lines of credit, reporting on the credit report, and that they have no late payments during the past 12 months.
Metro Community Development urges prospective buyers to develop a budget and “pay themselves first” each pay day. This is the first target for financial stability and building your credit. Whether you save $5 or $50 each pay day isn’t as important as the fact that you SAVE and allow this money to accumulate.
Once you have save $350, our partner credit unions will enable you to take out a “secured loan,” at a very low cost, and they report your ordinary payment to the credit bureau. (This costs them to credit union… and so some place don’t report it each month) This is the most important feature, as this monthly reporting is what makes your credit score go higher.
Take the proceeds of the loan (the money they loaned you) and deposit in into an account that you don’t touch; and set up automatic payments from that account for the next 12 months. This will ensure that there are NO late payments.
Continue saving each pay day. Once you have save another $450 or more, open up another “secured loan.” Do the same thing this second time… and a third. You will have saved money, and won’t have any liability!
At the end of the 12 months or payments, you will have paid off the loan – and will have nearly double what you originally borrowed! (Example: $350 your savings + $350 your loan (minus minor interest charges).)
This BUILDS YOUR SCORE, and helps you meet the requirement that you have 3 or 4 lines of credit! And it is absolutely SAFE. You can’t get in trouble. You can’t mess up 8 or 9 months into the loan because something happened… and your prior 8 months of hard work was lost!
Why not use credit cards to do this?
- Because it is TOO easy to spend TOO much.
- It is TOO easy to miss payments.
- It is TOO easy to get laid off, and not have the income to pay the debt.
- It is too easy for an emergency – car repair, etc. to come and then YOU don’t have the money to pay it.
Be sure your regular expense payments are made on time, too. This is the importance of the BUDGET.
RENT, UTILITIES, PHONE, CABLE, DAY CARE, GYM MEMBERSHIP, CAR INSURANCE, LIFE INSURANCE, ETC. and other regular expenses that you pay in your ordinary expenses month to month, need to be paid on time.
Most lenders will really take a hard look at the expenses you incur on housing. If you pay housing expenses late, the lender feels that the mortgage will also be late.
S borrowers who lack enough "traditional, commercial credit" to still qualify by providing as many as possible, but at least 3 or 4 lines (sources), of good credit (which means, paid as agreed). These verifications are used to demonstrate at least 12 months good payment history (longer payment history is better!).
So, if you pay your normal bills on time, give the company one of these "verifications” and ask them to complete it – they must mail or fax it back. (You can’t hand deliver it, and think that it would be “proof.”) They'll complete it and fax it back to Metro Community Development. We can assist you in using these alternative credit sources to help the lender to qualify you for a good, quality mortgage, that doesn't require that you jeopardize your stability and well-being!