Birmingham, AL · Member since 2013 · 21 posts · 1 vote
First of all, I'm 21 years old in Birmingham, AL, about to graduate college, and I have no debt. I also don't have any credit built yet. How can I start? I've heard of people "piggy-backing" off their parents' credit to give some credibility to the young person. What are other ways?
Are there ways to be loaned money without credit? (other than putting up everything you have as collateral?)
I still have a lot to learn about financing property. I am mainly interested in multifamily units, which I have read are similar to single-family homes in terms of financing.
I don't know much about FHA loans, but I've heard they only require around a 3.5% down payment to get a loan. Is this true? Would that mean I would just be responsible for a down payment in terms of money required to purchase a multifamily unit?
I need some more information. Any direction would be fantastic.
Also, I don't have any properties in mind just yet. I am not about to just jump in and flounder. I am taking my time trying to learn the steps involved as well as who I need to contact to get things rolling.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Tyler, will you have a job? Where is the capacity to pay besides from the property, since you don't have mgt. experience?
The exception to the credit rules is a new grad working in a job in his degree field.
I'd suggest, unless you have deep pockets, to start smaller, a 4 plex owner occupied can go to FHA as a first time home buyer, a tri-plex or duplex. Get your own house in order first.
Great you're getting out without debt, that is fantastic! Start smaller, the financing will be easier. Good luck!
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Tyler, will you have a job? Where is the capacity to pay besides from the property, since you don't have mgt. experience?
The exception to the credit rules is a new grad working in a job in his degree field.
I'd suggest, unless you have deep pockets, to start smaller, a 4 plex owner occupied can go to FHA as a first time home buyer, a tri-plex or duplex. Get your own house in order first.
Great you're getting out without debt, that is fantastic! Start smaller, the financing will be easier. Good luck!
Birmingham, AL · Member since 2013 · 21 posts · 1 vote
13y
That sounds like a good idea. I am not sure just yet. I have a couple of leads on positions with companies after graduation.
Would getting a secured credit card be a good way to start with building credit? I've read a little about them. They require a down payment. I will wait and see based on how my job prospects go before moving further with investing. Until then, I will just read and ask questions!
Do you have a car? When I turned 18, I went to my credit union and asked for a car loan. They told me as long as the loan amount was less than 75% of the book value, they'd loan to me. No down payment needed. I was in high school making $150/week. They also said, since I already had a car that I owned outright, they'd loan me 75% of that cars value. So there's two options depending on your vehicle situation. A little advice... They use the dealer retail price as their value, so if you buy a car from a private seller, you should automatically be below the 75% figure. It only took a year to go from no credit to a 675. For FHA, you need a 620, 3.5% down, and a year of on time rental history.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
13y
As far as building credit, the quickest jumpstart will probably be a secured credit card, as well as a small ($500 or $1,000) 12-mth installment loan secured by a savings account or CD, which you should be able to get at your local credit union or bank. Just verify that they report to all three credit bureaus. Make sure that the credit card has no strings attached and doesn't cost more than $30 a year or so.
Credit card companies use to just throw credit cards at students getting ready to graduate. Have they changed this practice?
You're certainly right that you can get an FHA loan for 3.5% down (the closing costs can be added in to the loan amount). These are owner-occupied only, and buying a 3-plex or 4-plex on an FHA loan, where you'll live in one unit, is probably the single best way to get started in RE investing. Ideally, the tenants will pay you enough rent so that you'll live free, or close to it. You can then save money like a wildman for your next investment.
Lender · New York City, NY · Member since 2013 · 67 posts · 7 votes
13y
Tyler McLeod, for multifamily its 20% down, Credit score- 680, net worth equal to loan amount, liquidity equal to 10% of loan amount.
Bill Gulley is right have some deep pockets for the rainy days: vacancies , repairs and I even hate to say Court. One the time comes you always want good tenants.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Secured credit, paying in advance and drafting off deposits is not an extension of credit. You'd do better by using a CD as collateral at the bank for a series of short loans and paying them as agreed.
It's easier to start with your own home, work that in first.
Lenders look to the type of credit, consumer credit for more of the same, real estate they look to rent and previous RE loans.
Starting out, I suggest you stay away from a new car loan, it usually messes up your income/qualification ratios, get a smaller loan, when it's less than six months to payoff they may not count that payment.
Building credit takes time, what they are looking for is a history of paying as agreed, not debt paid off early.
Get a job in line with your education....Good luck....
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
13y
Regarding comments:
A secured installment loan will most definitely lift your credit score as you make payments, and is the easiest way to get started. A local bank here has a "Credit Builder" secured installment loan for just that purpose. A secured credit card will also help, if its actively used and paid off. Your goal is simply to raise your credit score to enable you to get financing.
You can finance a 2-4 unit property at 3.5% down FHA financing if you live in one of the units, minimum credit score typically 620. If not owner occupied, you can't use FHA and the downpayment will be much higher (25-30%).
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Originally posted by David Beard:
Regarding comments:
A local bank here has a "Credit Builder" secured installment loan for just that purpose. A secured credit card will also help, if its actively used and paid off. Your goal is simply to raise your credit score to enable you to get financing.
True, and that, IMO, is bank maketibg crap. But true, it helps, like filling a swimming pool with a 5 gallon buckt, over time it works. A secured credit card is pretty much marketing hype at banks, it is not an extension of credit as to credit worthness as they can deduct amounts for payments, so the bank could be crediting the account while you feed the back end with deposits.
It is the type of credit that is important. An American express card that is required to be paid in full each month is also a limited "credit builder", it provides an unsecured revolving credit line. That helps when you apply for a Sears Credit Card, J.C. Pennys types.
Your credit score is developed through a stistically weighted computation of different types of credit, not all credit lines are equal, your income is reported on applications, it determines your ability to pay and debt limits, which also are computed, these can bring scores down as well.
Some credit blips are totally ignored in RE financing, I can't count the number of times I had a borrower who had decent credit and collection problems reported by Sears. It was so bad for awhile, Sears was just ignored, so were some others.
RE is secured financing, the heaviest weight given to your credit is current and past RE loans, then other secured lines of credit. Again, the best way to have secured lines is not through a secured credit card that can fund itself, but a loan to be repaid over time, amortized, that is secured by an asset, like a CD as the CD does not make payments for you.
The whole things is about seeing how people manage money over time, paying as agreed, where they must make the effort to make the payment, not an arrangement where, if they fail to pay the payment is deducted from an account, there is no money management activity there, shows little effort.
Secured credit lines are most important to secured lenders, the guy at the Rent To Own store is more interested in how customers pay revolving debt, past rent to own accounts than thier home loan. One could pay a home loan on time for years and make every payment late to Sears or on some rent to own account.
Again, if you are getting out of college and go to work in the field you majored in, credit, at least the lack of credit won't be a big deal, if you have some credit and it's bad, then you have a problem.
David is right to about 3% down on an owner occupied FHA, duplex, tri or 4-plex, they are single family dwellings in lending. That is most likely the best way to start out. IMO :)