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Can You Buy a House at 18 with No Credit?

Prospective homebuyers may face challenges obtaining financing to purchase their first home, no matter how old they are. Young people may face even more challenges, though, especially if they have little to no credit history.

Even if you're 18 and you have no credit, it is still possible to buy a house. While your options may be limited, or you may be forced to finance the home in alternative ways, there is still a possibility that you could finance a home when you're this young.

Below are some of the options that you might have to take if you want to buy a house at 18 with no credit.

Conventional Loans

You may think that you won't be able to qualify for a conventional loan if you're 18 years old and have no credit, but this isn't necessarily true.

Freddie Mac and Fannie Mae are the federal agencies that are tasked with setting rules for almost all conventional loans. And while these loans aren't often thought of as having relaxed standards for applicants, such borrowers aren't automatically barred.

To meet the necessary requirements for a conventional loan, though, you might have to meet other requirements. One thing that you probably will have to do is increase your down payment.

While you could be allowed to make a minimal down payment on a conventional loan with good credit, if you're 18 and have no credit, you will probably be forced to increase your down payment to 5% or even 10% of the purchase price.

The loan you are seeking won't be able to exceed $647,200. It also must be used as your primary residence and be a single-family home.

Not all lenders will consider you for a conventional loan even if you increase your down payment, but some will.

Alternative Loans

Alternative home loan programs were created because not everyone has a strong credit history and a solid credit score. These programs were designed to allow young people with no credit the chance to still borrow money to purchase a home.

One of those programs is called the FHA mortgage. Backed by the Federal Housing Administration, FHA Loans are designed for people who don't have a strong credit history, or any credit history at all.

There are many benefits to FHA Loans, in addition to the fact that you will get approved. The loans require a down payment of as little as 3.5% and lower income limits. You may be required to pay monthly private mortgage insurance (PMI) to get FHA Loans, but it is a good route to take. 

Another option could be USDA loans, backed by the U.S. Department of Agriculture. This loan program works similarly to FHA Loans, though there are limits as to where the home you are buying is located. 

In both cases, the U.S. Department of Housing and Urban Development (HUD) will set the restrictions in terms of where the home is located and how much the sales price can be.

Finally, making a mortgage payment will help you build equity, which is one of the best investments you can make. In a way, buying a house is an effective way to save money and get a compound return on your investment at rates that are significantly better than dumping your money into a savings account.

Get a Cosigner

The above options aren't a guarantee for all 18-year-old borrowers. Some who don't have any credit may need to get help from someone they know in order to be approved for a mortgage.

If you are unable to get approved for a mortgage on your own when you're 18 and have no credit, you might need to get a cosigner. A cosigner is someone you know who would be willing to sign their name as a co-borrower on your mortgage.

This person can be really anyone of your choosing, though it should be someone you know and trust well, such as a family member or close friend. When you get a cosigner, that other person will be attaching their name to your loan. As such, their income, debt and credit score/history will be taken into account.

A cosigner can then boost how you look as an applicant to lenders, as it gives them extra confidence when extending you credit. The cosigner needs to understand, though, that they will be financially "on the hook" for your home. If you default on your mortgage payments, for example, they'll be responsible for the payments as if the loan were their own.

Seller Financing

If all of the above options aren't viable for you, one final avenue could be obtaining seller financing. Not all homeowners will agree to do this, though, so just be aware that it isn't a slam dunk.

Under seller financing, you won't be creating an arrangement with a mortgage company to finance the purchase of your home. Instead, you will sign an agreement with the seller in which you will pay them directly for the purchase price of the home.

Seller financing will be a very custom arrangement. You and the seller will have to come to terms not just on the purchase price of the home, but how you will repay it, how much you'll pay each month, what the interest rate will be, what penalties there will be if you don't pay, and many more details.

If the seller is amenable to this type of financing, you should strongly consider hiring a lawyer experienced in this type of real estate negotiation to represent you. Seller financing can be complicated, and you want to make sure that you have all your bases covered.

Hiring a real estate attorney may be costly, but it will be well worth it to protect your interests and your asset.

Also keep in mind that if you go with seller financing, you'll be responsible for paying your property taxes and property insurance separately. You won't have the option to pay those ongoing costs via escrow as you might through a traditional mortgage.

 

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