Little brother bought a house: Mortgage question.

als1982

Hey all!  My little brother made an offer on a house last week, which was accepted by the buyer.  Now, he's shopping for a mortgage.  Problem is that he has zero credit history.  Never had a credit card, student loan, car payment, nothing.  So, the local bank is quoting him a rate of 4.5% for a 15 year.  Do you all think he can do better (without a co-signer) and if so, where and how?  He is putting just under 40% down.  Also, this is in a super LCOL area, so housing prices are less than the cost of a luxury car.  Thoughts?  Suggestions?

kmurphy2131

als1982 said:

Hey all!  My little brother made an offer on a house last week, which was accepted by the buyer.  Now, he's shopping for a mortgage.  Problem is that he has zero credit history.  Never had a credit card, student loan, car payment, nothing.  So, the local bank is quoting him a rate of 4.5% for a 15 year.  Do you all think he can do better (without a co-signer) and if so, where and how?  He is putting just under 40% down.  Also, this is in a super LCOL area, so housing prices are less than the cost of a luxury car.  Thoughts?  Suggestions?

I'm not sure if he can do much better than that. We could get 3% right now, but that is with right around 800 credit scores.  I wonder if there is anything he can do to help prove financial responsibility.  I'm not sure that the banks/credit unions can do all that much to help him.  The entire thing is an algorithm and there isn't much wiggle room for a lot of the criteria.

bmo88

4.5% for a 15 year is not a good rate. We were offered 3.2% last month for a 15 year but we have credit scores in the high 700s and a long history. We opted for a 20 year mortgage at 3.8%. 

However, he has no credit history, he probably can't do much. Honestly, he should have started building up his credit history and found a bank for pre-approval BEFORE shopping for a home. But, obviously nothing he can do about it now. 

Best bet is to take that for now, start building up a better credit score and then refinance in a year.

emily1004

He should definitely shop around. There are so many lending institutions out there, now a days, some place may be able to get him a better rate. If he can't, he may be able to refinance again in a few years. 4.5% isn't bad, it just isn't great, either. 

als1982

emily1004 said:

He should defiantly shop around. There are so many lending institutions out there, now a days, some place may be able to get him a better rate. If he can't, he may be able to refinance again in a few years. 4.5% isn't bad, it just isn't great, either. 

Agree. I'm just not sure a big bank is going to lend him less than $25,000. I guess it's worth trying!!

JoanE2012

4.5% isn't good compared to the best rates out there.....but 4.5% is not a bad rate historically!  And for someone with no credit, I think it's pretty darn good.   Like PPs mentioned, perhaps when he builds up his credit, he can refinance in a year or two if rates are still low.

smerka

If I had to guess the rate is because of the low amount of the loan. I was just playing around with the mortgage calculator on Bank of America and they won't even give you an estimate if the loan amount is below $60,000.

als1982

smerka said:

If I had to guess the rate is because of the low amount of the loan. I was just playing around with the mortgage calculator on Bank of America and they won't even give you an estimate if the loan amount is below $60,000.

It's a local bank. Would that make a difference? For reference, the home price is average for the area.

emily1004

Also, try online, maybe QuickenLoans or something similar, or a local credit union.

dragonstarjk

als1982 said:

Hey all!  My little brother made an offer on a house last week, which was accepted by the buyer.  Now, he's shopping for a mortgage.  Problem is that he has zero credit history.  Never had a credit card, student loan, car payment, nothing.  So, the local bank is quoting him a rate of 4.5% for a 15 year.  Do you all think he can do better (without a co-signer) and if so, where and how?  He is putting just under 40% down.  Also, this is in a super LCOL area, so housing prices are less than the cost of a luxury car.  Thoughts?  Suggestions?

Personally, I think this is decent for somebody with no credit history.  A lot of times, we can't even qualify a person for ANY loan because they've never had any credit, so the fact that he is qualified for 4.5% seems pretty fair to me.  I would suggest he open a credit card or two (after his mortgage is finalized, never right before) and start building his credit history.  He can have them open without using them, but it will give him more history.  And then in a couple of years he can try to refinance for a lower rate if the market is still low.

I don't know about other banks, but we don't typically charge a higher interest rate because the loan amount is small.  Our rates aren't based on the size of the loan, but rather on your credit score, D/I ratio, etc. etc.

If I were him, I'd maybe shop around one other place, but not too many, because he doesn't want to have a lot of inquiries on his credit report in a short amount of time.  If they give him the same result, I'd say it's a safe bet that he should take the offer.

Erikan73

Seems like a great interest rate to me considering he has no credit. DO NOT become a co-signer on his mortgage to help him get a better rate. He sounds like he's responsible since he's putting 40% down, but I don't think it's ever a good idea to co-sign on a mortgage for anyone.

cbee817

Our 15 year is 4.0% but we refinanced back in 2010. Has he tried a credit union at all? Our local ones here always seem to have a lower loan rate and a higher savings rate. I would not co-sign for him though- 4.5% is still really good.

short+sassy

I'm going to concur with the other PPs on here.  He should check out a few more banks but, before they run his credit, he should tell them he has no credit history and find out if that will be a problem.  They might be able to just tell him straight off that he wouldn't qualify.

It is a pretty high rate for a home loan.  But, imo, not really a big deal if he gets a credit card or two (after closing) to better establish his credit and then do a refi in 1-2 years.  Of course, who knows, that might be more the going loan rate in 1-2 years anyway.

The majority of banks require a minimum of $50K for a home loan...and that's the loan part itself, not the total price of the house.  But there are also a lot who don't.  The bank I have my mortgage at only requires a minimum of $10K for a home loan.

This happened to a previous set of tenants I had.  They were "cash" people and didn't believe in any kind of financing, other than for a house.  They were in their late 20s, but neither one had ever had a car loan or a credit card or anything else like that.  Admirable, really.  But then they found a house they wanted to buy.  At least in our area, they couldn't find any banks that would give them a loan without a co-signer.

They were really upset but, in the end, the woman's father took the loan out for them.  But, here's the bummer.  He refused to cosign.  So, although they pay it, the loan is only in his name...so they still aren't getting any goodness for their credit reports. 

jtmh2012

short+sassy said:

They were really upset but, in the end, the woman's father took the loan out for them.  But, here's the bummer.  He refused to cosign.  So, although they pay it, the loan is only in his name...so they still aren't getting any goodness for their credit reports. 

Can't say that I blame him.  How many times have we heard that we should never co-sign for a loan?

brij2006

Not sure if he's found something yet or not, but have him call Churchill Mortgage.  They do manual underwriting specifically for people with nothing on their credit (not bad credit though), and their rates were very good, last I checked.

short+sassy

jtmh2012 said:

short+sassy said:

They were really upset but, in the end, the woman's father took the loan out for them.  But, here's the bummer.  He refused to cosign.  So, although they pay it, the loan is only in his name...so they still aren't getting any goodness for their credit reports. 

Can't say that I blame him.  How many times have we heard that we should never co-sign for a loan?

Oh, definitely!  I wasn't saying that like the father was a jerk.  However, I just personally didn't think that was a wise choice on the part of my previous tenants.  The house needed a lot of work.  They put a nice down payment down, put a ton of work and money into the house to make it livable, pay the mortgage every month.  All for a house that, under the law, they don't own or have any claim to.  And still weren't making any progress toward the "no credit" problem they had to begin with.

At the time, I recommended they get a couple credit cards to build up their credit.  And then, in a year or two, have the dad sell the house to them for whatever the loan amount is at that time.  But that was 3-4 years ago and, when my H and I were snooping around recently on the tax assessor's website, we noticed the house is still owned by the dad.  We were snooping because of a nearby house we are thinking about buying, not snooping on them specifically.  Really, I'm not a stalker, lol.

The dad is actually a real estate attorney, so I assume he knows what he is doing and has handled it the best way it can be.  But it's still not something I would have wanted to do if I had been in their shoes. 

short+sassy

As an aside, I still laugh that my very first tenants ever had a real estate attorney for a father.  I didn't know that until many months into their tenancy when he came out to visit for a convention.  I secretly hoped they had never shown him my lease.  Not because there was anything bad in it, but I got it off the internet and I'm sure it looked very Mickey Mouse to an attorney, lol.

But all's well that ends well.  Their tenancy went smoothly and we were always on good terms.