I’m going to tell you about a real-life example of how I sold a home to an 18 year-old client who had no established credit at all, but who was eventually able to buy a home! The whole reason why this 18 year-old wanted to buy a home was because his father had died, and he wanted to buy a home for his mom, his siblings and himself! Isn’t that so thoughtful? My client was obviously very mature for his age, because it’s not every day that a lender would come across an 18 year-old who was this on-the-ball! My young client had a solid work history, and of course, that’s an anomaly at that age! He’d been working at his job since he was 15 ½ years-old! I’m going to describe what was done in my client’s case for him to qualify for a home loan, and then I’ll give you more thoughts and information to help you, in case you or anyone else needs to buy a house this way! I know that there are always adults who don’t ever use anything other than cash to pay for stuff, so this info can help them as well! Now back to my story about my 18-year-old client, lol! He obviously had a solid work history, and that’s critical! Plus, he was able to use the fact that he lived at home as his rental history! I actually don’t remember if he ever contributed towards rent or not, but whether he did or didn’t isn’t going to change the ability to get a home loan! It’s just part of the loan application and documentation process to find out someone’s rental history! So how did my client get his loan application approved? I showed my client how to provide “alternate” credit to the credit bureaus. The following are some of the examples of alternate credit and how to get that to the credit bureaus: My client, for example, had a history of going to a particular jewelry store to buy gold jewelry, like gold rings or necklaces. In this case, the jewelry store just needed to state on company letterhead that they knew my client, and they knew his purchase history at the jewelry store, as well as the fact that he always paid in cash. The letter needs to also have the manager’s name and phone number on it, before it’s sent to all three credit bureaus. It’s up to YOU, btw, to send that letter to all three credit bureaus! It then takes approximately a month for the credit bureaus to notify you that they’ve received your information, and this starts the credit building process. One of the other things that my client had going for him and that counted as alternate credit was that he actually had a life insurance policy! Yes, this is WAY out of the norm for someone that age to have a life insurance policy, but my client had gotten that after his father had died, because he wanted to make sure that his mom was taken care of, just in case anything ever happened to him health-wise as well! So, the insurance company did the same thing as the jewelry company by sending him a letter on their letterhead, verifying all these facts, and then that was one more thing he was able to send to the credit bureaus to start his credit history! The last thing that my client used to build his credit history was to go to the local used car dealership where he bought his car! As you can guess, the same process applied, in terms of getting a letter to all the credit bureaus, on company letterhead! These are just SOME of the many examples of alternate credit, btw! I bet that you’ve never heard of alternate credit before, but you do NOW! There are actually many lenders who aren’t even aware of the alternate credit building process, because it’s not something that they see every day! I WILL say that if you go the alternate credit route, you probably want to show whatever company you’re choosing my blog, because they’ve probably never heard of alternate credit either! You’re also far better off going in person to get a credit letter on letterhead from these businesses! Don’t count on them mailing you the credit letter that you need, unless that’s their policy! Be proactive, tell them what you need and ask them how long it’ll take them to provide that credit letter to you! Let them know how important this is to you! Get all your ducks in a row for them, in terms of showing them past purchases of yours, since you may or may not have been consistently dealing with the same salesperson at that particular company or business! The following is my last little tidbit of information to help you build your credit history the fastest -- Have you ever heard of a secured credit card? There are certain banks or companies that provide these, such as Wells Fargo, Chime, etc. Call your local bank or credit union to see if they provide secured credit cards. Getting a secured credit card is THE very best and fastest way to build credit or increase your credit score! This is going to sound VERY counterintuitive and stupid when you get a secured credit card, but what you’re doing is actually depositing at least $300 onto whatever secured credit card you find. Yes, it’s your own money, but what happens, is that even if you’re just buying a pack of gum every month and then paying it off when your payment is due, your payment history is then reported to all three credit bureaus every month, and time will fly by quickly, in terms of seeing your score go up! What is CRUCIAL is that you CANNOT spend more than 30% each month of your available credit on that secured credit card! You have to be supremely disciplined and not rack up or max out that card, or else you’ve just screwed your chances of ever having better credit! Remember that! Feel free to either email me at owlmountainproperties.shannon@gmail.com with any questions you may have after reading my blog! You can also comment on Facebook or Substack, OR go to my website at owlmountainproperties.realestate and send me any inquiries or comments! Don’t forget to “like” my blog, please! If you haven’t already, you’ll want to read my two previous blogs, because each one of these is extremely insightful in your quest for homeownership!!
I have wanted to create a blog for a long, long time. And in the past, I always had a million things get in the way. Most of those things were completely legitimate, like losing my daughter and both my parents. I also used to work for a government entity that consumed a LOT of my time, and I wasn’t in the right spot financially to finally dive back into real estate. But since things have recovered for me, I am NOW, and there are MANY things that I’m going to write about each week that will help thousands of individuals, just like you, to finally be able to buy a house! I have had some VERY unique real estate experiences over the past few decades, and I’m going to focus on one each week. You will find these experiences extremely helpful, whether you’re thinking about buying or selling a property, or buying/selling land in the future! Segment One — Real Estate Loans in General One of the most important things that I can tell you regarding real estate loans is that NOT all banks or lending institutions are created equally! For instance, there are direct lenders, mortgage lenders, banks and credit unions. Each of these entities do things differently! Lenders can vary in the type or amount of service they can or WILL give you during the homebuying process. They can vary regarding the interest rate that they’ll quote you, or they can differ on the type of loan that they will try to suggest for you! Additionally, there are different kinds of conventional loans, and there are different kinds of FHA loans. Therefore, you need to know what your loan choices are, so you’re informed and prepared! Otherwise, you might just assume that what a lender is telling you is going to be the best deal that you can get. NOT true!! Segment Two – Specifics of Rehab or 203(k) Loans There are several types of rehab loans. There are rehab loans that you can qualify for. There are conventional rehab loans, and there are FHA rehab loans. FHA’s are also known as 203(k) loans. Here’s just one of the differences — With a rehab or 203(k) loan, say you’ve decided on a particular house that you want to purchase. Your lender might tell you that you have a lot of bills, credit card debt, car debt, or student loan debt! Here’s what’s great about having a rehab loan; if you find a home that needs repairs, like a new roof, new windows, a new hot water heater, or anything else that’s super important for you to have done to your new home, then a qualified 203(k) lender can and will generally lend you up to $35k for necessary repairs, and the money that they’ll lend you is in addition to how much you qualified for in the first place! In plain English, say that you can only afford a $100,000 home at best. Well, with a 203(k) loan, you could find a home in that price range and then have necessary repairs done to it utilizing that 203(k) loan! Isn’t it nice not having to come out of pocket ahead of time for that $35k or so needed for repairs? SUCH a relief! So, after having all the repairs done on this hypothetical $100k house, you’re going to have a house that’s worth far more than what you paid for it originally! Out of this world, aye? With a 203(k) loan, you can pick out the house you want, and your lender will ask you to provide them with the following information that they need from you, including: 1. Your last two months’ bank statements; 2. Your last two years tax returns; 3. Your rental history for the past year; 4. Your employment status; 5. Any records of credit cards, car loans or student loan debt It is VERY important to get this information in a timely manner! The longer you take to get the above information to the lender, the longer it’ll take for you to close on your property! Time is of the essence in regards to collecting those records! If you’re serious about owning a home, then you need to be equally serious about getting any documentation or information to the lender when they ask you for it! Segment Three - Conventional vs. FHA Rehab Loans My advice? If you CAN, go with a conventional rehab loan before having to get an FHA rehab loan. Why? For one thing, there are more fees associated with an FHA rehab loan vs. a Conventional rehab loan. Additionally, an FHA rehab loan has stricter guidelines regarding the repairs, as compared to a Conventional rehab loan. What determines which kind of rehab loan you can get, you might ask? Your credit score is one of the biggest factors. If you have a credit score under 640 (or sometimes it only has to be 580-ish and above), then you probably will ONLY qualify for an FHA rehab loan, because the FHA credit score requirements are lower than those required for a conventional loan. A personal note: I am simplifying things a bit, because there are many caveats to all of this, but if you email me with any questions, I can point you in the right direction for more details! Segment Four - The Rehab Loan Process More essential info from me! If you get a rehab loan, you need to know that the process usually takes a few months for you to close, BUT, you don’t do any of your repairs until AFTER you’ve closed on your home! Isn’t that otherworldly?! Even more unbelievable, there will be a special 203(k) inspector who will go through the home thoroughly with you. It’ll cost approximately $500, and that inspector is worth their weight in gold because they’ll tell you at LEAST as much as any licensed home inspector would, and probably more! That inspector will go through that property with a fine-tooth comb and then give you a very detailed report. In that report, there will be items that you would HAVE to have repaired after closing on your home! There will be items that are SUGGESTED to be done after closing on your home, and then, if you still have enough money to work with, there will be what I like to refer to as “fluff” repairs, lol! These are repairs that aren’t mandatory or necessarily suggested that you have done to your new home, but rather upgrades or other things added to your home that are more of an aesthetic or cosmetic nature. An example of this section would be if you wanted to have a super nice stove or super nice refrigerator installed, the inspector might put down “replacing” the current ones in the home! Hopefully, you get the drift on what I’m saying! It’s hard navigating on this asteroid belt… XD Back to the topic at hand, with a rehab loan, you have up to six (6) months AFTER you’ve closed on that loan to have those repairs done. SO, even more essential advice from me is, don’t be lazy and wait until you’ve closed on that property to start looking for contractors to do the work! If you do, you’ll be totally screwed for having waited until the last minute to find contractors! Speaking of contractors, you’ll be given a spreadsheet with qualified 203(k) contractors who can do the work for you by your lender. Shop around, thoroughly research, and identify an approved 203(k) contractor within that spreadsheet that’s not going to flake on you and leaves you hanging on getting repairs done in time! Just because those contractors have been identified as being a qualified 203(k) contractor doesn’t mean that they’re not a flake, because there ARE times where they’ll juggle your job with their existing job(s), and you don’t want to have surprises like that, in terms of a contractor taking too long to do your repairs! On another note regarding contractors, ask your lender if you can have your uncle, daughter, or other family member do some or all of the repairs for you! There ARE obviously caveats to this, but BE SURE to ask your lender, so you’ll know for sure what they will and won’t allow in terms of who does your repairs! Segment Five - Construction Loans Next, we’ll discuss Construction Loans. Construction loans are fairly similar to the rehab loans that I’ve just described, but one of the big differences between the two is that with a construction loan, you have twelve (12) months to do any necessary repairs after you’ve closed on your property, whereas with rehab loans you have just six (6)! I also know that there are some construction loans out there where you only have to put 5% down, vs. 6.5% or 10%! My advice regarding Construction Loans is to ask your lender if you can have your closing costs wrapped into your loan, if your goal is to have as little as possible to have to shell out at the closing table, in terms of funds! Segment Six - Buying Land With a Rehab or Construction Loan! I know, I know; we’ve discussed a lot up until this point. These otherworldly concepts are difficult to process, but we’re not done! Guess what? Did you know that you can just find a piece of land and get either a 203(k) loan or a construction loan, and then have either 6 or 12 months in which to build that home? Talk about a big bang for your buck! Obviously, with this scenario, you’d better have your astronaut ducks in a row beforehand, in terms of already knowing who could build your home for you, etc. With either the rehab or construction loan, the timing of that loan is VERY important. For instance — If you close on that loan in November, chances are that no one’s going to be able or willing to build a house for you in the dead of winter, lol! Therefore, my advice? Have your closing sometime in February or later, depending on the area of the country in which you live, so you’ll know that the weather won’t be an issue for you in terms of having a home built. THEN, you will have more luck nailing down a contractor who can finish the job before winter hits! So remember - that’s one of the benefits of a construction loan— you have twelve months to get everything done, instead of just six months! Each of these loans have their benefits and also some limitations. The key to looking at either of these types of loans depends on who you know (who your contractor’s going to be), doing your homework ahead of time (lining up contractors, etc) and being extremely proactive. By the way, on the HUD.gov website, you can not only find the list of all the possible contractors in your area, but also what FHA loan guidelines there are, for those of you who will be getting an FHA rehab loan. That website will also tell you who all the qualified 203(k) lenders are in your area. Not just ANY lender can do a rehab loan! It HAS to be a 203(k) qualified lender! That website will also give you even more details on an FHA rehab loan! It’s an excellent resource to utilize! Thank you for reading my first post! I would truly appreciate a like, share, or subscribe if you could! In my next post segments, I will go into what I call “The Good, The Bad, and The Ugly” of credit cards and student loan debt, in terms of the things you need to be aware of before buying a home! Each of the segments that I will have are going to be VERY helpful and informative to you!! Well, earthlings, I hope this all helps those of you who have either wanted to know more about rehab or construction loans, or how those types of loans can benefit you during these times of tight housing markets and inventory! We aliens, can be quite informative!!
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