Quickest way to start house hacking with little to no credit
Houston, TX · Member since 2019 · 1 post · 1 vote
I’m 19 I’ve been wanting to house hack for awhile now so I started building my credit as soon as I could I make a little north of 25k annually at the job I have now. I’m currently pursuing a higher income job however I’m wanting to start this adventure sooner than later. I’m in the Houston area so there’s a huge market Problem is, how can a 19 year old with little credit buy a property a bank would never in a million years approve that loan so any and all advise is welcomed I really think this my passion and I intend to pursue it with excellence this app has massively increased my knowledge and drive in pursuing this thanks to everyone out there and I’m stoked to hear yalls feedback
The nice thing about a house-hack is banks are, for the most part, going to treat you like a normal homebuyer. And they loan money to first time homebuyers all the time. Keep in mind, you'll need a 3% down payment for an FHA loan (property needs to be in great condition for that kind) or a 5% DP for a conventional loan. Plus closing costs, some of which could be rolled into your offer to have the seller pay for. A seller will typically view that as a deduction from the overall purchase price, so keep that in mind with your offer if you request closing costs.
I believe the credit bureaus start people with a good credit score, though a bank will also be looking to see a credit history. Do you have a credit card? If not, look for a "starter" one...a student one if you are in college...and get one. Make one charge a month and pay it off. You won't pay anything in interest with that strategy, but you'll be building your credit. If you've ever had any kind of installment loan, ie car loan, that will look great also.
If you are currently renting, there are websites out there that will count your on-time rent to positive info on your credit report. Do a Google search to check it out. Though there is usually a small monthly fee (less than $10).
However, if you get/have credit cards or loans, be careful with the amount of the monthly payment. Banks will also look at your DTI (Debt to Income) and you aren't going to have too much room with a $25K annual salary. Good luck! You'll definitely reach your goal if you keep working at it. You might just have to be patient.
The nice thing about a house-hack is banks are, for the most part, going to treat you like a normal homebuyer. And they loan money to first time homebuyers all the time. Keep in mind, you'll need a 3% down payment for an FHA loan (property needs to be in great condition for that kind) or a 5% DP for a conventional loan. Plus closing costs, some of which could be rolled into your offer to have the seller pay for. A seller will typically view that as a deduction from the overall purchase price, so keep that in mind with your offer if you request closing costs.
I believe the credit bureaus start people with a good credit score, though a bank will also be looking to see a credit history. Do you have a credit card? If not, look for a "starter" one...a student one if you are in college...and get one. Make one charge a month and pay it off. You won't pay anything in interest with that strategy, but you'll be building your credit. If you've ever had any kind of installment loan, ie car loan, that will look great also.
If you are currently renting, there are websites out there that will count your on-time rent to positive info on your credit report. Do a Google search to check it out. Though there is usually a small monthly fee (less than $10).
However, if you get/have credit cards or loans, be careful with the amount of the monthly payment. Banks will also look at your DTI (Debt to Income) and you aren't going to have too much room with a $25K annual salary. Good luck! You'll definitely reach your goal if you keep working at it. You might just have to be patient.
I'm trying to do something very similar to you @Jorrin Crow. I'm in Houston and want to start off investing by trying to house hack. I'm working to build my credit score before attempting anything. Which podcast episode or blog post is helping you start off?
Thanks for that @Jennifer T. that was helpful for me. One step at a time.
@Jorrin Crow House Hacking on an income of $25k will be a bit difficult but not entirely impossible. You will likely want to look into an FHA First Time Buyer home loan. They will typically only require up to 3% down; however, you will still need to pay closing costs as well as a Mortgage Insurance Premium (MIP - not sure if it is up-front or monthly). The MIP alone can be anywhere from $150-250 extra per month. Your best bet would be to buy a house that needs some work (undervalued to market of course), rent the rooms out to offset your payment, and save cash to rehab the property in steps over the course of a year or two.
Keep in mind that once you sell the house, you cannot take advantage of the First Time Home Buyer loan program again for a period of time (2 years not owning a home I believe)
I know the city of Houston has a program to help those with low income purchase a house. They will grant you a significant amount to put toward the purchase. I cannot recall the name of the program or the qualification requirements but it is definitely something to look into.
You might want to look at the NACA program (naca.com). It is a zero down payment, zero closing-cost program for owner occupied 1-4 family homes. Underwriting also uses a different methodology than the traditional FICO score approach.
@Jorrin Crow Another option to consider is a USDA rural loan, "100% financing" according to the signs I drive by every day. We live out in Richmond/Rosenberg area of Houston near Walnut Creek subdivision. Now, these houses I'm specifically referring to run about 230k and are brand new so no flip required and the monthly payment would eat any potential to save money but that's not the point.
You may be able to find a pocket of rural land that offers a house worth house hacking where you don't have to put hardly anything down. Worth looking into more as I don't know all the specifics on this program
Join the Navy. Save a little bit, if you can, but honestly most don't. But at least you haven't dug yourself into $50k in debt by the time you are drinking age.
Serious, go do this, or at least give it some real thought.
Get these three critical advantages:
(a) college money
(b) VA loan
(c) you are 4 years older, with at least a basic level of discipline and maturity.
You read this post 10 years from now and you will have that good job, living in that house that you bought for almost zero down, and you will be well on your way to house-hacking or BRRRR or whatever.
Ok technically it doesn't have to be the Navy, but this is my post, and my recommendation, so … Go Navy!