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Ask Money

The penalty for good financial habits

Chris Farrell Apr 22, 2011

Question: I am a recent medical student graduate now in residency, and my fiancé will be also graduating soon and joining me in a new city. Previously we lived in a house my parents bought and had me included in the loan & title. Now we are trying to buy a home in the new city.

I contacted a mortgage broker for a large national bank and was told since we use only debit cards or cash, we cannot qualify for a mortgage due to lack of credit history. My fiancé falls under the same category. We explained that we have no debt (thanks to our parents hard work), pay our bills on time, have guaranteed income (mine for 7 years, hers for 3; at which point it will increase substantially) and I currently pay more in monthly rent than estimated mortgage payments would be.

Is there a solution to this situation? The mortgage broker told me I cannot even qualify for an FHA loan due to lack of credit cards. I find this hard to believe, and would like to know if there are any other options available other than starting a whole bunch of credit cards. Thank you, and I enjoy your show very much! Sincerely, Abhineet, Chicago, IL

Answer: I wouldn’t take the mortgage brokers reaction as the last word. Even if the broker turns out to be right the setback should be only temporary. And bravo–the way you and your fiancé handle money will hold you in good stead over the long haul. .

The first thing I would do is visit the credit union where you’re doing your residency (if there is one there) or talk to credit unions and smaller banks with a large customer base in the medical field. I would schedule an appointment with a loan officer.

I’d go over your job situation, income and financial habits with the loan officer. My guess is that the loan officer will appreciate income benefits of your residency (and your fiancé’s) and be more willing to work with you than the mortgage broker. You’re a sterling credit and a good customer to have on the books.

I would also push on the Federal Housing Administration (FHA) option with any loan officer you talk to. You don’t need credit cards to qualify for FHA loans. The FHA has long allowed lenders to establish a borrowers creditworthiness by looking at so-called “nontraditional” payments, such as meeting on time and over time your utility, phone, cable, rent, insurance and other

It bothers me to say this, but it’s practical advice for you to get a credit card. You don’t need a bunch–just one. You don’t want to carry a balance (and clearly you wouldn’t). But I would build up a credit history and a credit score by using the credit card to pay some regular bills. You’ll pay the balance off in full at the end of the month. No debt, a credit history and a credit score.

You can always get rid of the credit card when you have the home if you want. At that point paying the mortgage will add to you credit history.

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