Millennials: Thank Your Parents If They Charge You Rent
LENDER: “Because you live at your parents' place without a lease and without having a prior mortgage, we cannot offer you an acquisition loan.”
If the above statement was the lender’s sole reason for declining your mortgage, then it is in contravention of the General Guidelines for Analyzing Borrower Credit per the U.S. Department of Housing and Urban Development (HUD). According to HUD, the lack of credit history (or a borrower’s decision not to use credit) may not be used as the basis for rejecting a loan application.
However, if, for example, in addition to no housing history:
- your credit score is low due to prior delinquencies,
- you are in the middle of negotiating an IRS payment plan for taxes owing,
- you are self-employed with an inconsistent net income stream, or
- your credit cards are new and with limited revolving credit availability,
… then you are not likely to get a conventional or FHA loan!
POSSIBLE SOLUTION: You might still be able to get a mortgage approval if you can demonstrate that you have been consistently contributing to household expenses – thereby, in effect, helping with your parents’ mortgage. Although it is always better to make payments by check (to more easily track your contributions), even cash payments can be acceptable support – in the case where your withdrawals can be matched to deposits in your parents’ bank statements.
Other compensating factors include showing that you have a consistent pattern of payments for utilities, vehicles, or insurance.
Here’s the Point: If you do not have any recent rent or mortgage payment history, then you will need to be patient and creative to get a mortgage.