If you are thinking about purchasing a home in the near future and you have little or no traditional credit, let me give you the following advice to prepare yourself to purchase a home.

First of all let me define traditional credit; traditional credit would be mortgages, car loans or other installment loans and revolving loans such as credit cards that report on your credit report. If you have these types of accounts then you probably have a credit score. If you don't have traditional credit, and you don't have a credit score, you can still get a loan but you will have to provide alternative sources of credit. The first one the lender will ask for will be rent. If you are renting from a family member or an individual landlord versus a management company that runs an apartment complex, you will have to provide cancelled checks for the last 12 months. Your name will need to be on the checking account if you name is going to be on the loan. DO NOT pay with cash if you are thinking about buying a home in the next year.

At the least get a cashier's check and keep copies of them and make sure the money for the cashier's check comes out of your bank account. Being able to properly document that you pay your rent on time is instrumental when it comes time for you to buy a home. Along with rent, we will need to verify payments on at least 2 other bills you have for the last 12 months. This can be a utility bill, cell phone bill, car insurance, etc. Again, it's very important that the bill be in your name if you are going to be on the new home loan, and it's very important we be able to document that you have been making the payments on time for the last 12 months.

I've seen may occasions where a potential homebuyer wants to purchase a home but doesn't have a credit score and we can't document rent payments or anything else because they were paid in cash. So if you are thinking of buying a home, start keeping a good paper trail on all bills that you pay and make sure that we can trace them back to your bank account and purchasing a home will be a lot easier.