Having a thin file is a natural hurdle to homeownership in Utah. After all, mortgage lenders assess the risk of loaning using credit scores, which are largely based on debt payment histories. If you are not a big credit card user, a lender has little information to judge how well you manage your finances.
Although trying to get into the property market as a thin-file borrower is harder, it is not impossible to snag favorable deals to buy one of the sought-after homes for sale in Eagle Mountain, Provo, or Ogden. Below are the strategies you should pursue to avoid getting your mortgage application rejected:
Think About Government-Backed Mortgages
High-risk borrowers gravitate toward government-insured mortgages, such as FHA, USDA, and VA loans. These financial products have friendlier requirements, so it is much easier to qualify for them. However, they are not necessarily more affordable.
Being able to take out a mortgage despite not having stellar credit is a privilege with a price. You may have to pay higher interest and pay extra insurance over the life of your loan. Furthermore, some government-backed mortgages are intended for specific homebuyers and properties. A thin file will not suffice to make you a perfect candidate for any of them. For instance, a VA loan is offered exclusively to active members of the U.S. military, veterans, and their spouses while a USDA loan is meant for purchasing a house in a rural area.
Put a Premium on Your Alternative Credit Data
Thanks to financial technology (fintech), mortgage lenders are beginning to use alternative sources of credit data to gain deeper insight into traditionally thin-file borrowers. An Experian survey revealed that most lenders believe that alternative credit data can benefit consumers who were previously declined to get loans.
Fintech-savvy financial institutions are adopting innovations to use rental, mobile phone, and TV service payments as well as bank account activities to evaluate a borrower’s creditworthiness more accurately. It is still important to understand the traditional credit scoring system, but paying attention to your other financial habits is more fulfilling now than ever.
Consider Novel Loan Programs
Due to fintech disruption, the financial services industry is no longer ruled by traditional banks and credit unions. Many lenders use innovation, creativity, and resourcefulness to bend the rules of mortgage lending and come up with novel loan programs.
Rent-to-own arrangements are becoming a trend to make it easier to produce a large-enough down payment, which is a common dilemma of thin-file borrowers. The fintechs that offer such deals include ZeroDown, which buys houses on behalf of their customers on a lease-to-own basis to eliminate any down payment. HomeFundMe does not provide a rent-to-own arrangement, but it is a crowdfunding platform that enables other people to contribute to a homebuyer’s down payment.
Having a short credit history may be just as bad as possessing a questionable item on your file, but this problem is easier to overcome these days. If you look hard enough, you may quickly find a fintech-based solution or an innovative mortgage lender in your area to facilitate your home sale.
