Applying for a new home loan can be intimidating, especially if you have a less-than-ideal credit score. While most loan programs and lenders have minimum credit score requirements, it is possible to get a no-credit-check mortgage that allows you to qualify for a home loan with no credit. Here’s a look at what to expect from the process and the options you’ll have.
Purchasing a home is an exciting milestone in life. But for many, poor credit or lack of credit history can be a roadblock to achieving that dream. If you’re asking “can I get a house loan with no credit?”, the good news is that it is possible with the right strategy. Here’s what you need to know about getting approved for a mortgage when you have no credit history.
Is It Possible to Get a Mortgage With No Credit History?
Yes, you can get approved for a mortgage loan even if you don’t have an established credit history. While lenders generally prefer to see a good credit score, they may approve borrowers with no credit by using alternative methods to assess creditworthiness.
Here are some ways lenders evaluate applicants with no credit:
- Reviewing documentation like rental payment history, utility bills, insurance payments to prove you pay bills on time.
- Requiring a higher down payment, typically 10-20%.
- Limiting maximum debt-to-income ratio to 36% or lower.
- Charging a higher interest rate to offset risk.
- Requiring mortgage insurance even on conventional loans.
So while it may take more work, home financing is still possible even if you have never had a credit card or taken out a loan in the past.
Getting a Mortgage With No Credit vs Bad Credit
There is an important distinction between having no credit and having bad credit when applying for a home loan.
If you have bad credit, you have a history of late payments, collections, or other negative marks that hurt your credit score. Lenders see this as a sign you are a high risk for non-payment. While mortgage lenders will often approve borrowers with less than perfect credit, interest rates and terms are much less favorable.
On the other hand, no credit means no track record at all. With no data to draw from, lenders view these borrowers as more of an unknown. While still considered higher risk than those with excellent credit, no credit applicants have a better chance at approval and better terms than those with damaged credit.
How to Get a Mortgage With No Credit
If your goal is to buy a house but you don’t have established credit, here are some tips to improve the odds of getting approved:
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Apply with a community bank or credit union Smaller lenders are often more flexible than big banks when it comes to unconventional borrowing situations, Developing a relationship with a local lender can help your chances
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Ask about manual underwriting. This involves a hands-on review of your application rather than relying solely on credit scoring algorithms. Provide as much documentation as possible to demonstrate you are a responsible borrower.
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Make a larger down payment. Putting 20% or more down shows you are financially committed to the home. This can offset the higher risk posed by having no credit history.
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Add a co-signer. If you have a family member or friend with strong credit willing to sign onto the mortgage with you, it can significantly improve the chances of approval.
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Consider FHA VA or USDA loans. These government-backed programs offer more flexible credit requirements and lower down payments for eligible borrowers.
Options for Getting a Mortgage With No Credit
Here are some of the most common mortgage programs first-time home buyers with no credit often use:
Conventional 97
This conventional mortgage option allows for a down payment as low as 3% along with more lenient credit requirements. However, it comes at the cost of significantly higher mortgage insurance premiums.
FHA Loans
FHA mortgages only require a minimum credit score of 580 and allow down payments as low as 3.5%. They are a popular choice for first-time buyers with limited finances and credit history.
VA Loans
VA home loans have no minimum credit score requirement and allow 100% financing. To qualify, you or your spouse must have served in the military for a specified period of time.
USDA Loans
For low-to-moderate income buyers in eligible rural areas, USDA loans offer 100% financing and more flexible credit requirements. Minimum score is often 640, but can be lower in some cases.
Manual Underwriting
As mentioned above, this process allows lenders to look beyond credit scores and use other evidence to approve borrowers with no credit history. Pre-approvals should always be submitted through manual underwriting when possible.
Non-traditional credit
Borrowers can use consistent on-time payments for rent, utilities, cell phone bills, and other expenses to demonstrate creditworthiness. Typically a minimum 12 month history of non-traditional credit is required.
How to Build Credit From Scratch
While getting a mortgage with no credit history is possible, having good credit scores and a robust credit file will unlock better loan terms and interest rates. Here are some tips to start building credit if you currently have none:
- Become an authorized user on someone else’s credit card. This allows you to benefit from their positive payment history.
- Open a secured credit card and use responsibly. This shows you can handle a line of credit.
- Take out a credit building loan from a credit union. Make on-time payments to establish positive history.
- Have utilities, cell phone bills, or other recurring expenses added to your credit report.
- Limit credit checks by only applying for accounts you need. Too many inquiries can lower scores.
- Create a budget to ensure you don’t overspend and can pay bills on time each month. Monitoring credit scores will help you track your progress.
With some discipline and smart financial habits, you can go from no credit history to a score of 700 or above within 12 months or less. Taking the time to build credit now will expand your mortgage options tremendously down the road.
The Bottom Line
Purchasing a home without established credit is challenging but certainly possible. Be prepared to make a larger down payment, find the right lender, and take extra steps to prove you are creditworthy. While it may take more time and effort, the sense of accomplishment that comes from overcoming obstacles on your path to homeownership makes it all worthwhile. Don’t let poor credit or no credit stop you from achieving your dreams.
How to prove you’re creditworthy without a credit score
In many cases, lenders will accept alternative credit histories if you don’t have the types of accounts that show up on the credit bureau reporting systems.This nontraditional credit history involves verifying your payment history on other obligations you have over the past 12 months, including contact information for all the people you’ve paid.
Keep in mind that this alternative payment history must be spotless. If there is anything derogatory on your report, like medical collections or unpaid utility bills, you won’t be eligible for alternative credit options. Here’s how a nontraditional credit history works and what lenders look for.
Absent a credit score, a lender will be most interested in how you’ve managed your rental payment history. The most recent 12 months of rent will be an indicator of whether you’re likely to pay a new mortgage on time.
You’ll need to provide a 12-month payment history with canceled checks or bank statements verifying your on-time payments. A copy of the lease will also be necessary to show that you were complying with the terms of a legal agreement, much like you will be when you obligate yourself to a mortgage.
Cash payments won’t work, and if you’re renting from a relative or friend, this won’t be acceptable for alternative credit underwriting.
Another sign that you are ready to buy a house is proof that you’ve paid utilities at your current residence on time. Again, you’ll have to show that the payments came out of your account with canceled checks or bank statements.
The utility bills should also show up in your name. If they don’t, you won’t be able to use the account as one of the options for your credit.
Other nontraditional credit items
In addition to having at least two housing-related items, lenders will want at least two to three other monthly payment histories to show that you can manage your obligations.
You’ll need 12 months proof of two to three of the following:
- Cellphone bill
- Cable bill
- Car insurance
- Life insurance
Any type of account that you pay monthly and have had for at least 12 months in your name will usually be acceptable for the additional credit items needed. In most cases, you won’t be eligible if you’ve had more than one 30-day late payment within the last 12 months of payment history.
How Do I Buy A House With No Credit?
FAQ
Can I buy a house if I don’t have a credit score?
Can I get a mortgage if I don’t have a credit score?
How big of a loan can I get with no credit?
Is it impossible to get a mortgage without a credit score?
Can you get a mortgage without a credit score?
No-credit-score approvals: While not all lenders offer this, some may approve conventional mortgage applications without a credit score, following guidelines set by Fannie Mae and Freddie Mac. Large down payment: Expect to make a larger down payment, usually at least 5% to 10%, depending on the lender’s requirements.
Can I buy a house with no credit?
However, there are loan options available if you want to buy a house with no credit. Although your lender will determine your exact credit score requirements, the following represent typical requirements for various mortgage programs: An FHA loan is a great option for someone with a FICO score on the lower end.
Do you need credit to buy a house?
Let’s start off with the easy answer. No, you don’t need credit to buy a house. Having an established credit history and a good credit score can improve your chances of qualifying for a mortgage. But if you are looking to buy a house with no credit, there are loan options available.
Can you get a home loan if you have no credit?
Various home loan programs can accept borrowers with no credit score, as long as you prove you’re financially responsible in other ways. This means you wouldn’t need to depend on a co-signer to get approved. Understand, though, that lenders get to set their own credit rules. So if one won’t accept your application, you may have to shop elsewhere.