Mortgages for Folks with Less Than Sparkling Credit

Here’s what I want to know. Is there some clever, possibly slightly underhanded (not illegal – just wiley) way to leverage my parents’ fantastic credit in order to get a home loan, when my own credit isn’t so hot? I have a pretty good income and I’m sick of spending it on rent, but I need a way to do this without making my parents in any way responsible – a.k.a, no co-signing. Since they’re older, they don’t really have much in the way of income, but they have a little money in the bank and great credit. Could they get a home loan for a second property and transfer it to me or gift it to me or something? Talk to me, smart financial people…

You’re about five years late …
In all seriousness, you’d need to give us a lot more info to go on. The odds are that your best bet is to improve your credit rating; with a bit of work, you can do a lot of repair in a year or two. Getting your parents involved is a bad idea for all concerned.

Not that I’d advise buying a house right now, anyway …

Just in case someone tries to suggest this old trick…Before they updated the FICO scoring system in 2009 you could have had your parents put you as an authorized user on their credit cards to majorly improve your score. People were even pimping out their high credit scores to strangers. Things changed., though.

The problem here is there would be nothing to gift. The house wouldn’t be paid for. I’d love to gift away all my loans.

Quite a few folks a few years back got home loans because the lenders got greedy and they looked the other way when some borrowers who got loans should never have been approved for them in the first place. Is this what you are asking?

I would suggest chatting with a mortgage broker. They can shop your credit around and see if they can get you something…

it’s worth a shot

Anther idea is to talk to a buyers only agent. He would look at your credit score and history and could advise you on what steps to take to improve your credit. He could also refer you to a mortgage broker.
I bought a house just a couple of years after declaring bankruptcy. My credit wasn’t great but I worked really hard to improve my scores and did everything my agent told me to. It was a long haul, but I was able to get a decent standard loan (not a subprime or anything) and got my house. It was a little easier then (I was able to improve my credit score by having my mom put me on her account, for instance), but it can still be done.
Don’t rush it…you have to be patient and learn new ways of dealing with your money before you make that huuuuge commitment.
good luck!

Forgive my ignorance, and while I’m not trying to hijack this conversation, please explain this. Seems to me the OP is looking for a simple home to live in – not any type of investment property. With interest rates low and home prices down, seems to me if you can afford mortgage payments, get a loan and don’t plan on moving (I.e., selling your home for a loss) for a while, now IS a good time to buy. Buy low, sell high, etc.

What am I missing?

BTW, around here, because so many people have been foreclosed on and are now renters, the price of a decent rental has skyrocketed (like 40-50% in the past 3 years).

And my two cents to OP: try the USDA home loan program. They generally loan to low income families, but they also provide some credit counselling and if nothing else can point you in a better direction if they are unable to help directly.

Are you planning to stay in the same place for at least five years? Buying a house or condo isn’t always a good idea, otherwise.

How do rents and housing prices in the area where you want to live, for the kind of place you want to live in, compare? In some situations, you can get a lot more home for your buck by renting.

You are aware that home prices can go down as well as up, right? Real estate isn’t always a safe investment.

You’re aware that houses and condos are prone to requiring expensive maintenance with little or no notice, right? Stuff like the hot water heater springing a leak does happen, and there will be no landlord to pick a plumber and pay for the repairs.

Actually, apparently you can still do this:
http://www.creditcards.com/credit-card-news/ossenfort-authorized-user-affect-credit-rating-1292.php (suggests you can do this if you also get a card on the account).

Lifestyle - Smart Spending & Frugal Tips | Bankrate.com - also suggests it can still be used, though it doesn’t clarify how it determines whether someone is a “legitimate authorized user”.

That said: I doubt the OP would be able to do much to get the mortgage company to look more favorably; the authorized-user thing would only do so much. They’re being MUCH more strict these days, and they don’t look just at credit score.

I’d recommend doing as others have suggested and talking with a mortgage broker to see what they might be able to do; in the meantime, continue making all your payments on time and try to reduce your debt ratios. Also put aside money for a down payment; you’ll have better luck (even with great credit history) if you can scrape up 20%.

Parents could NOT gift you a house; if they took out a mortgage, then transferred the house to you, it might trigger the “due on sale” clause. If they took out the loan and kept it in their names, while you paid the mortgage, you couldn’t reap the benefits of the tax deductions.

You might be able to qualify if you can pay a larger down payment, a higher rate of interest, and more points. Then you can re-finance it after a year.

Talk to a mortgage broker.

HOWEVER - do NOT count on being able to refinance. Make sure you can pay the mortgage even if you’re stuck with that rate for the long term. Rates might increase… values might decrease… lenders might get even MORE antsy about extending credit… even if your credit has improved and you still have at least 20% equity.

Anyway - if you can swing the current payment, you’re still OK even if it’d be nice to be able to refinance but you can’t do so for whatever reason.

Definitely do not count on being able to refinance. Rates are at historic lows right now.

Don’t count on your salary going up in the next few years, either, unless you have a very good reason to think it will (like Mr Neville, in a tenure-track job going up for tenure). Salaries can go down as well as up, too. Careers don’t always take off. I wouldn’t count on getting promotions unless you have a track record of doing so, or on moving up in your career unless you have a concrete and realistic plan for doing so.

Did you do something to make your credit less than sparkling, or is it just a case of not enough credit history? If it’s the former, I’d make sure that whatever behaviors led to the less-than-sparkling credit have been fixed before I took on any new major financial obligations. More financial obligations are not your friend if you have bad money habits.

Are you in a stable life situation? Either in a stable marriage, in a long-term relationship that isn’t likely to change, or single and likely to stay that way? Are you likely to stay in the same job, or would you not have much trouble finding a similar job with similar pay in the same area? Is your job likely to stay where it is? If you’re not in a situation like that, I’d think long and hard before committing to buying a house or condo.

The short and long answer is no. Just think about it: You are asking if you can use your parents’ great credit, but not have them on the hook for the loan.

That’s why the banks look for good credit…less risk when that great credit is “on the hook.”

You need to talk to a banker and see what he/she can do for you.

How ironic. In an attempt to warn someone about getting outdated info, I used outdated info. Thanks for the correction and links. That’s why I love this site. That whole “legitimate authorized user” thing is confusing though.

You don’t want to end up in the position that these people are in.

My point here is, lender’s guidelines on credit scores and the like aren’t just a plot to keep you from having what you want and deserve. They’re there to keep you from getting in over your head and ending up desperate to sell your house or condo. If you need to use underhanded methods to get a home loan, you should be asking yourself if this is something you should be doing. It’s kind of like if you’re using a chainsaw and you’re prevented from doing something you want to do by the safety features, you should question if what you want to do is really a good idea.

Talk to a few brokers or bankers and be honest about your situation. If no one will give you a loan, it probably means that you shouldn’t be looking to buy a house or condo at this point in your life. Work on improving your credit and try again in a couple of years.