19 years old -- zero credit score. Creative funding ways? Father?

Question

Hello BP. I'm currently looking at SFR in the 80-110k range as a rental property. Problem is, as a College student, I very recently just started building credit. At the moment, I actually have no credit score/history. Additionally, aside from a paid internship I have this summer, I do not have income. Therefore, I'm not the most attractive candidate to lenders. Let's be honest, they want nothing to do with me. However, I refuse to let this stop me from beginning my REI journey. Additionally, in today's market, deals are going quick. Time to act.

I recently spoke to a mortgage broker who recommended the following: My father, who has excellent credit history, has openly told me that he would love to support me as I begin this journey - given that I provide him with a certain return, obviously. The broker thus recommended that once I find my SFR, I have my dad be the one to buy it with a conventional 30-year loan. With his credit/income, he would easily qualify. Meanwhile, aside from managing the property, renovations, tenants, etc., I focus on building my credit. Once my credit is good enough - I'm guessing a year or two down the line - I BUY the house from my dad. I believe this is called a non-arms length transaction. I'm a little confused about what this part would look like, and was wondering if anyone could shed some light. What would be my options in acquiring the property? What would financing look like? Does the fact that we're father-son affect anything in the transaction? Could we just re-finance his mortgage, but sign me on and take him off?

Overall, any advice would be appreciated. I've read just about everything on REI, but never about this particular situation.

Thanks BP!

Rivy S. · Answer

If you're dad's got a great credit history, see if he'll add you as an authorized user to one of his oldest/ highest limit cards. That should give a sizable boost to your credit score in a pretty short amount of time.

Ilan Szulik · Answer

@Stephen Lofthus Thanks for all your advice. House hacking is definitely the plan for Senior year. Just tough for next year (Junior year) because I'm spending half the year abroad in Italy. One more question I'd love to get your 2 cents on: I've found a lender who gives mortgages to people with no credit, like me. I don't think the terms are very desirable though, but I'm new to this so I'd love a second opinion. From what I know now, it seems it would be a 7-year arm at 4.75%, and would require at least 40% down. This would be for a 100k property. Thoughts? Thinking that if I were to do it, I could maybe refi or sell before the 7 years are up. 40% down is a lot though. What's your opinion on putting a large percentage of money down? By the way, getting the money wouldn't be the problem. Thanks again for your help Stephen

Stephen Lofthus · Answer

@Ilan Szulik not trying to pursuade you from your dreams by any means. There are a couple ways like @Peter Vekselman said. Your dad can get a hard money loan, he can refi his personal property, he can give you a personal loan, he can co-sign on a loan..etc. if your dad was going conventional on a mortgage he can add you on title and then you can build up your credit and refi out of his name when your able to. Talk to more lenders..

Mike Huang · Answer

I don't see why you can't put the property on both your and your father's name rather than looking at those lending terms.In your situation, everything is about how much hustle you can bring to the table so that other people would be willing to invest with you with their money. Definitely consider the refinance option and see if you can force appreciation on the property so that you can pay your dad back quickly.

Stephen Lofthus · Answer

@Ilan Szulik what I would personally do is house hack during college..have your college friends rent from you and pay your mortgage while you live for free. Go Multifamily..win win, my personal 2 cents..

Shannon K. · Answer

@Ilan Szulik, I'm thinking along the same lines as @Stephen Lofthus-- How much time will you have to devote to this when September hits and school rolls around again? By the time you find a suitable property, inspect, and gain a conventional mortgage on the property, close, clean it up, interview renters and have them move in... its likely going to be September! Just something to think about...

Ilan Szulik · Answer

@Stephen Lofthus My goal is get to my first deal done and cash-flowing by the end of this summer. Once school starts back up in September, I'll have a little less time to devote to this. However, I've never been one to shy away from my passions. I'm committed to doing this, so I'll find the time.

Stephen Lofthus · Answer

Ilan Szulik how much time are you devoting to this while managing your education?

Peter Vekselman · Answer

@Ilan Szulik you are thinking outside the box and that is good. But the real question is what is your goal and objective with this deal?You mentioned tenants so it sounds like you are trying to get a rental property. Remember, you are not going to get rich with one rental. But, you can build up nice cash war chest with buying, fixing and selling a few deals or simply wholesaling them.Your Dad could possibly get qualified for an equity line or short term financing through a local bank or a hard money lender. This would make the process a lot easier on your Dad, and also I believe will accomplish the goal you are trying to accomplish......MAKE MONEY!!