Yesterday I mentioned that I don’t use credit cards. Some of you may have fainted, gotten back up and then wondered aloud, “How will she buy a house or a car or other big stuff?” Thanks for your concern! Okay, fine, maybe I have an over-active imagination. But I can’t be the only one who has been told by co-workers, friends, or older adults that I have to start building my credit if I ever want to achieve the white picket fence enclosing the American Dream.
Well my friend, the need for credit cards is a big fat lie. You don’t need the magical plastic if you live a financially responsible life. And it isn’t as tough as you may think. You are probably doing several financially responsible things right now (fingers crossed). If not, you have the power to start ASAP. Let’s face it, apartments are cool, but someday you may want a house. I know I do.
So again, I’m taking some wisdom from Dave Ramsey. In his book, The Total Money Makeover, he has a whole chapter dedicated to Debt Myths. I’m going to cover some of his astute anti-credit card points. If you get tired of me or if I don’t give enough info – check his stuff out!
Here’s how to get a Mortgage without touching a credit card (even with a 10 foot pole).
Solution 1: Dave is a little crazy sometimes. His most obvious suggestion for getting a house without credit is to pay with cash. I, budget addict that I am, can’t imagine waiting the…ummm, long time it would take me to save up $150 thousand, give or take. But if you feel up to the challenge, please go for it! And tell me if you achieve it so I can have hope (and be all jealous). But seriously, this is a possible solution, and with discipline and patience you will save a lot of money.
If you want to buy a house sooner than an “ummm, long time,” here are some other tips for getting a mortgage without credit.
Solution 2: Find a mortgage company that will underwrite your loan. According to my extensive research, this means finding a company that will take your financial responsibility factors into account instead of just your credit score.
Soultions 2.1-4: If you find a company that does underwriting, what will they be looking for? Great question! Let me tell you.
- Great Renting History: Have you paid rent on time for the past two years? Seems pretty easy. Hopefully we’ve all been doing that. If not, we need to talk. Please see me after class.
- Solid Employment History: I know that phrases like “layoffs” and “tough economic times” swirl around like confetti in this day and age, but if you’ve been fortunate enough to hold a steady job for the last 2 years then, that’s another factor that will help you.
- Healthy Down Payment: Putting 0 percent down on a house sounds tempting, but don’t go there, it is a trap. Do you want to end up owing more on your house than it is worth, a.k.a. have an underwater mortgage? I didn’t think so. Go scuba diving in the real ocean, not with your money.
- Reasonable Loan Request: Your monthly payments should only be about 25% of your take-home pay. This is a safe request, and it should help you get qualified.
It took me longer to rant and rave about the mortgage issue than I thought it would, so I don’t have the time or energy to go into other Credit Card myths.
But here’s the bottom line: Save up money to make big purchases, even cars! And you will be freed from payments that can come into your life and steal all of your saving and fun power. I think my friend Dave would agree; debt is not a lifestyle that you have to accept. A little patience and discipline will give you financial freedom for the long haul.