How Long Will It Take to Build Enough Credit to Buy a Home Without a Co-Signer?

Here's a comprehensive guide to building your credit score to the point where you can qualify for a mortgage without the need for a co-signer.

Understanding Credit Scores and Mortgage Requirements

The first thing you should know is that a co-signer, which is more properly termed a non-occupant co-borrower, will not help if your credit score is too low to secure a mortgage. Lenders typically use the lower of the credit scores when multiple applicants are involved in a loan application.

Furthermore, the requirements for obtaining a mortgage might not be as stringent as you think. The minimum credit score for a conventional loan is a 620, while government-secured FHA loans are more lenient. You would only need a 580 credit score for an FHA loan, and you can secure this with just a 3.5% down payment.

With this in mind, I'll focus on FHA loans, as they are frequently the first choice for individuals with limited down payments and credit history.

Improving Your Credit Score

To begin, ensure that your credit report has at least two active trade lines and enough data to generate a credit score. If you have no credit score because of a lack of recorded credit history, you can leverage non-traditional credit. This involves the lender reviewing your history of paying financial obligations such as rent, utilities, cell phone bills, insurance, and childcare.

Using non-traditional credit means your loan will be manually underwritten, resulting in a higher interest rate and stricter debt-to-income ratio caps, which will limit the size of the loan you can get.

If you must rely on non-traditional credit, you will need to document at least 12 months of acceptable payment history.

Building Your Credit from Scratch

If you have no credit history, start with a secured credit card from your bank or credit union. Use this card for routine daily purchases, paying it off in full each month or when you come close to the credit limit. This approach avoids the need to pay interest and offers no scoring benefit from carrying a balance.

After six months of regular use, you should have a credit score. At this point, you can ask the issuing institution to remove the security deposit requirement. If they refuse, mark your calendar to reapply in three months.

At the six-month mark, apply for two more credit cards, ideally from retailers such as Amazon, Target, and Macy's. Use these cards in the same way as your first one, paying them off in full each month.

Utilizing Authorized User Accounts

An alternative method to accelerate the credit-building process is to become an authorized user on a credit card held by someone with a good credit history. Before doing so, ensure the card is in good standing with a low or zero balance. The credit card owner's performance will influence your credit history.

However, as an authorized user, you retain the ability to request removal from the account if the card's owner faces financial trouble.

Final Steps for Home Ownership

Assuming you have funds available for a down payment and a stable source of income, you could be in a position to purchase a home with a small down payment within 12 months or less, without the need for a co-signer.

A Word of Advice

I hope this guide is helpful as you work towards improving your credit score and securing a mortgage. Good luck on your journey to homeownership!