How to Get a Mortgage Loan With No Credit Score

For most homebuyers, having a good credit score is key to qualifying for a mortgage But what if you don’t have a credit score at all? The good news is, it is possible to get approved for a mortgage loan even if you have no credit history. In this comprehensive guide, we’ll explain everything you need to know about no credit score mortgage loans.

What Does It Mean to Have No Credit Score?

Having no credit score simply means you don’t have enough credit history for the major credit bureaus (Experian, Equifax, and TransUnion) to calculate a score. This happens for several reasons

• You’ve always paid with cash rather than using credit cards or loans.
• You’re a recent immigrant without U.S. credit history.
• You’re young and just starting to establish credit.
• You haven’t used credit in several years.

Having no credit score is very different from having bad credit. With bad credit, you have a history of missed payments or other financial troubles. No credit score means limited history, which lenders view as less risky.

Is It Possible to Get a Mortgage With No Credit Score?

Yes you can qualify for a mortgage loan without an established credit score. While challenging, it is possible through manual underwriting, nontraditional credit documentation and certain mortgage programs. Key strategies include

• Providing a large down payment to offset the risk
• Finding a cosigner with good credit
• Working with specialized lenders like credit unions
• Looking into government-backed loans like FHA, USDA, and VA

The requirements and options differ depending on the mortgage program. But with the right approach, homeownership is possible even with no credit history.

Requirements for a No Credit Score Mortgage

When applying for a mortgage with no credit score, expect to meet strict requirements to prove your creditworthiness:

• Down payment: Typically at least 10% or higher. The more you put down, the lower the risk.

• Reserves: Up to 12 months mortgage payments in savings.

• Debt-to-income ratio: Usually a maximum of 36%. Lower than limits for those with credit scores.

• Nontraditional credit: Documents like rent payment history, utility bills, etc.

• Manual underwriting: A human reviews your application and documents.

• Private mortgage insurance: Lower credit scores mean higher insurance rates.

The exact requirements vary by lender and program. Government loans like FHA and VA have more flexibility than conventional mortgages.

Nontraditional Credit Documentation

With no credit score, lenders look for a strong history of nontraditional credit sources like:

• 12 months of on-time rent payments – Canceled checks or bank statements required as proof.

• Utility bills – Gas, electric, cell phone, and cable bills help if they are in your name.

• Insurance payments – Documents showing on-time payments for car, health, or life insurance.

• Other monthly expenses – Childcare, tuition bills, medical payments, etc.

• Secured credit cards – These can help build history if used responsibly.

Ideally, you want to provide 12 months of payments for 3-5 nontraditional credit sources. The more documentation you provide, the better.

Manual Underwriting Process

Instead of relying on computerized credit scoring, manual underwriting involves a human reviewer judging your overall creditworthiness. They look beyond your credit score to consider things like:

• Your income, assets, and overall financial health
• Nontraditional credit history and documentation
• Circumstances explaining your lack of credit
• Compensating factors like a large down payment

Manual underwriting takes more time but offers more flexibility. Be prepared to thoroughly document your financial situation.

Mortgage Programs for Borrowers With No Credit Scores

Certain mortgage programs are more amenable to borrowers without credit scores:

• FHA loans – Allow manual underwriting for no credit borrowers. Competitive interest rates and low down payments.

• VA loans – No minimum credit score requirement. Ideal for eligible veterans and service members.

• USDA loans – Manual underwriting permitted. For moderate income borrowers in rural areas.

• Portfolio loans – Held by lenders rather than sold to investors. More flexibility but can have higher rates.

• Hard money loans – Focus on the property as collateral rather than your credit. Very high rates and fees.

Talk to multiple lenders to find one able to accommodate your situation. Non-bank and online lenders are often more flexible.

Tips for Strengthening Your Mortgage Application

Though possible to get approved with no credit, a few tactics can further boost your chances:

• Shop around for lenders willing to manually underwrite
• Offer a down payment of 20% or more
• Have a co-signer with strong credit sign with you
• Document 6 months living expenses as reserves
• Get preapproved so the lender can verify income and assets

The stronger your application and financial profile, the better your odds of overcoming the lack of a credit score.

What’s Better – No Credit or Bad Credit?

Most lenders would rather work with no credit vs. bad credit. No credit simply means you lack enough accounts to have a score calculated. Bad credit indicates past financial troubles or irresponsibility.

No credit score borrowers may face stricter requirements. But their clean slate is less concerning than past missed payments, collections, or maxed out cards. All things equal, it’s generally easier to get approved with no credit history than bad.

Should I Wait to Improve My Credit First?

Not necessarily – improving your credit takes time. If you have the income, assets, and down payment to qualify now, waiting may only delay homeownership.

Manually underwritten government-backed loans provide feasible options for purchasing sooner rather than later. You can then work on building your credit while enjoying your new home.

Just know the requirements will be more stringent without a credit score in place. Make sure you can confidently handle them before applying.

Key Takeaways on No Credit Score Mortgage Loans

• Zero credit history makes approval harder but not impossible.
• Documentation, down payment, and underwriting are key to qualifying.
• Certain lenders and loan programs offer more flexibility.
• Bad credit is considered riskier than no credit by most lenders.
• Building credit history can expand your mortgage options down the road.

While qualifying for a mortgage with no credit score presents challenges, homeownership is achievable through the right lender and loan program. Be prepared to make a compelling case to demonstrate your creditworthiness.