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.
Buying a home is an exciting milestone in life. However, it can be challenging to get approved for a mortgage if you have no credit history. Many lenders view applicants with no credit as risky, since they have no track record of managing debt and making payments on time.
At my company we understand how frustrating this can be especially for first-time homebuyers. The good news is that there are ways to get a home loan even if you don’t have a credit score. In this article, I’ll walk you through what you need to know about getting a mortgage with no credit history.
Why Lenders Want to See Your Credit History
When you apply for a home loan, lenders want to see that you are creditworthy and can manage monthly payments responsibly. Your credit reports and scores give them insights into your financial behavior, including:
- Number and types of credit accounts
- Age and status of credit accounts
- Total available credit and amounts owed
- Payment history
In general, the higher your credit score, the less risky a borrower you appear to be. Many conventional lenders have a minimum credit score requirement of 620 to qualify for a mortgage.
With no credit history, lenders have no way to gauge your creditworthiness. That’s why some may be hesitant to approve applicants with no credit score.
Proving You Can Handle a Mortgage Payment
The good news is that you can take steps to demonstrate your ability to manage a mortgage payment even without established credit. Here are some tips
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Show a history of on-time rental payments Provide 12 months of canceled checks or bank statements as proof
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Verify payments for utilities and other bills. Show at least 12 months of on-time payments.
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Explain your situation to the lender. Let them know if you’ve always paid in cash or avoided credit.
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Make a larger down payment. This gives the lender assurances if you were to default.
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Add a co-signer to your application. Their good credit can help you qualify.
With manual underwriting, a lender reviews these factors and makes a case-by-case lending decision. This is more flexible than relying solely on credit scores.
Types of Loans for Borrowers With No Credit
Certain home loans are more available to buyers with no credit history. Here are some options to consider:
FHA Loans
FHA loans are backed by the Federal Housing Administration and are popular with first-time buyers. You can qualify with just 3.5% down and a minimum credit score of 580. With 10% down, some lenders may approve borrowers with no credit score.
You’ll pay mortgage insurance with an FHA loan. Rates may be slightly higher than conventional loans too. But FHA loans offer more flexible credit requirements overall.
VA Loans
VA loans help military members, veterans, and their families buy a home. There is no defined minimum credit score, which makes them a good option if you have no credit history. You won’t need a down payment either.
Of course, you or your spouse must have served to use a VA home loan benefit. But if you qualify based on military service, it’s worth exploring this zero-down payment program.
USDA Loans
In designated rural areas, USDA home loans allow 100% financing for low-to-moderate income borrowers. There is no required minimum credit score. With manual underwriting, you may qualify by verifying 12 months of on-time payments for other bills.
USDA loans offer affordable financing and flexible credit guidelines. Just note the home must be in an eligible rural location.
Portfolio Loans
Local banks and credit unions may offer portfolio lending programs. These keep the mortgage loan in their own portfolio instead of selling it to investors.
Portfolio lenders can set their own qualifying guidelines. They may approve a home loan with no credit score, especially if you have an existing relationship with the institution.
Non-QM Loans
Non-qualified mortgages (non-QM) don’t conform to standard underwriting requirements. These loans generally come with higher rates and costs. Proceed with caution and understand the risks before choosing a non-QM loan product.
Steps to Build Credit and Strengthen Your Mortgage Application
While it is possible to buy a home without established credit, taking steps to build your credit can benefit you now and in the future. Here are some tips:
- Become an authorized user on someone else’s credit card to build credit history.
- Open a secured credit card and use it responsibly to establish positive payment activity.
- Have rent, utilities, phone bills, etc. reported to the credit bureaus if possible.
- Limit new credit applications while in the homebuying process.
- Maintain low revolving credit card balances compared to limits.
- Pay all bills on time each month.
Even establishing 6-12 months of positive credit history can make a difference in your mortgage approval odds and interest rate. Check your credit reports too, and dispute any errors.
With time and diligent credit management, you can strengthen your home loan application.
Partnering With the Right Mortgage Lender
As you navigate getting a mortgage with no credit history, it pays to find the right lender fit. Here are tips for choosing a lender:
- Ask about alternative credit guidelines and options for thin-file applicants.
- See if they offer manual underwriting for special situations.
- See what first-time homebuyer programs they participate in.
- Inquire about down payment assistance programs.
- Look for personalized customer service.
Reaching out to lenders before you apply for pre-approval can give you critical insights into program requirements. Be upfront about your situation so you pick the lender most likely to approve your application.
You Can Become a Homeowner Even With No Credit
Lack of established credit doesn’t have to keep you from buying your first home. While it may limit some mortgage options, there are still ways to qualify if you have no credit score. Be proactive with manual underwriting, choose the right loan programs, and find a lender willing to review your entire financial picture.
Homeownership is possible even with no credit history if you prepare your application strategically. At our company, we have experience helping thin-credit borrowers get approved with the right approach. Don’t get discouraged ─ your dream home could still be within reach! Contact us today to start a mortgage consultation.
Loan programs that allow for mortgage approval with no credit score
In addition to the loan application methods mentioned above, there are also specific lenders and mortgage loan programs that cater to low and even no credit score applicants. Some of these are government programs, which insure the loan for the lender and make it easier for them to approve borrowers with added risk factors (such as a limited credit history). → Note: None of these programs allow borrowers with no credit to purchase a second home or investment property — it will have to be your primary residence.
| Loan type | Minimum credit score | Possible to qualify with no credit? | Who it’s for |
|---|---|---|---|
| Conventional loans | 620 | Borrowers who don’t need to borrow more than the conforming loan limit for their area. | |
| FHA loans | 500 | Borrowers who want to make a small down payment, or whose credit is too low to qualify for a conventional loan. | |
| VA loans | No minimum | Veterans, active-duty service members and their qualifying spouses | |
| USDA loans | No minimum | Borrowers who:
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| Hard money loans | No minimum | Borrowers who:
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Here’s an in-depth look at how different common programs handle potential borrowers without a credit score.
Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgages in the residential housing market. The conventional loan programs they offer require higher credit scores than government loan programs, and less total debt compared to your income, which is also referred to as your debt-to-income (DTI) ratio.
While they do allow for approvals if you don’t have a credit score, there are additional restrictions.
| Nontraditional credit | Credit scores 680 or above | |
|---|---|---|
| Down payment minimums |
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As low as 3% |
| Mortgage reserve requirements | As much as 12 months’ worth of payments as reserves, depending on applicant | None |
| DTI ratio maximums | 36% | 43% to 50%, depending on applicant |
| Private mortgage insurance (required if you make less than a 20% down payment) | Amount comparable to premiums charged to borrowers with lowest credit scores | Lower comparative premiums |
The Federal Housing Administration (FHA) insures loans with more flexibility for credit and DTI. It also allows for nontraditional credit histories, although the requirements are slightly different than conventional mortgages.
The FHA does require an independent third party credit report to verify any nontraditional credit information that you provide. All credit providers, including your rental reference, must be verifiable by an outside company — if you rent from a family member or friend, you won’t be eligible for the loan.
In most cases, you’ll need to be able to provide a 12-month payment history from three of the following sources of nontraditional credit to be considered for an FHA loan with no FICO scores:
- Rent
- Telephone
- Gas, electricity, water, television service or internet service
The rent history is mandatory, but if you don’t have two more that are housing-related, the FHA will also consider the following:
- Insurance premiums that aren’t deducted from your payroll (renters insurance, life insurance)
- Child care payments
- School tuition
- Payment on medical bills not covered by insurance
- 12-month documented history of regular cash deposits into a savings account that were at least made quarterly, and were not deducted from a paycheck. The period cannot include nonsufficient funds (NSF) penalties
- A personal loan with terms in writing and a 12-month payment history at a regular, set amount
The payment history cannot reflect late payments in the last 12 months and no more than two 30-day late payments in the last 24 months on all other provided account histories.
Without a credit score, the FHA will not allow the total debt ratio to exceed 31% for the monthly payment compared to income, and 43% for total debt divided by income. This is a more strict requirement than the allowances for borrowers with credit scores, with exceptions sometimes available up above 50% with a high credit score.
The standard down payment of 3.5% is allowed for borrowers with no credit score, and there are no additional restrictions.
One advantage of an FHA loan over a conventional mortgage is the mortgage insurance is the same regardless of credit score. FHA mortgage insurance is calculated based on the current Department of Housing and Urban Development (HUD) guidelines and does not vary based on FICO Score, or a lack thereof.
With FHA loans, you pay two forms of mortgage insurance. One is the upfront mortgage insurance premium which is a lump sum amount of 1.75% financed onto your loan amount if you make a minimum down payment of 3.5%. The annual mortgage insurance is between 0.80% and 1.05% for a loan term greater than 15 years, depending on the loan and down payment amount. It is paid monthly for as long as you have the loan.
The Department of Veterans Affairs (VA) provides eligible active duty and veteran members of the military with home loan benefits that are very different from conventional and FHA loans. The most notable differences are there is no down payment requirement and no credit score minimum, as the VA recognizes that often recently discharged veterans who were on overseas tours of duty may not have developed a credit history. That gives the VA loan a built-in system for approving exceptions for veterans with no FICO Score.
As long as the veteran can provide proof of recent rental history, and additional payment records including a history of payments on utilities, car insurance or other expenses the veteran has paid, a VA loan approval is likely.
Unlike conventional loans and FHA loans, a VA loan with less than a 20% down payment does not require mortgage insurance. A funding fee may be charged instead, and it is usually financed onto the loan amount.
The VA funding fee varies based on how much the veteran is putting down and whether they’ve used their home loan eligibility or not. For veterans with service related disabilities, the funding fee may be waived completely.
The U.S. Department of Agriculture (USDA) offers mortgage loans to people in low income areas of the country, usually in rural areas. One of the features of the program: no requirement for a down payment.
Like FHA loans, the USDA will allow borrowers to obtain a loan with no credit scores. In most cases, they prefer a traditional credit report, but a rental history, plus three additional trade references, may be acceptable as long as they have a 12-month payment history and the credit source can be verified independently.
USDA loans don’t have mortgage insurance impacted by credit scores. There are guarantee fees, not to exceed 1% of the loan amount upfront and 0.35% of the loan amount annually, regardless of credit score or lack thereof.
Hard money lenders often skip the question of credit altogether, since their loan approvals are largely based on the value of your collateral rather than your financial profile. This is great for borrowers with bad or no credit, but it’s also crucial to understand that they aren’t typically going to make a good replacement for a traditional mortgage. Hard money loans are often used by house flippers or other borrowers who just need a short-term loan of one to five years, and they come with much higher APRs than traditional mortgages.
How to get a mortgage with no credit score (or credit check)
Yes, you can get a mortgage even if you have no credit score, or if you’re looking to avoid a credit check because of bad credit. Here are four strategies to get a no-credit-check mortgage approval:
Whether you have poor credit or no credit score at all, adding a creditworthy cosigner to your mortgage loan can be one way to improve your approval odds.
A cosigner is someone who agrees to share responsibility for your loan and its timely repayment — even if you’re the one technically making payments each month. Your cosigner may be a spouse, parent, sibling or even a close friend who is willing to be added to your mortgage. It’s important to note that your loan and its repayment history will be reported to their credit, too.
The larger the down payment you offer to make on a home, the less risk the lender has to take on by offering you a mortgage loan. If you were to default on your loan repayment, the lender has a better chance of recouping their money if you’ve already contributed a significant portion and/or there’s notable equity established in the home.
If you are struggling to qualify for a new home mortgage with your existing credit history, offering a large down payment may help improve your odds. Additionally, some lenders and mortgage loan products may require a larger down payment if your credit score is lower.
During the loan underwriting process, a lender analyzes a borrower’s level of risk in regards to repayment of their new loan. This means looking at factors such as income, employment status, existing debt and other expenses to see if the borrower can reasonably make their monthly payments without struggling.
If you have an existing relationship with a credit union or local bank, you may have a better chance of mortgage loan approval there. That’s because credit unions often have more flexible lending requirements and a more personalized approach. If you have other products through that institution — such as an auto loan or credit card — and have a healthy payment history on those accounts — the institution is likely to take this creditworthiness into account.
Additionally, you may have better luck applying with online lenders, some of whom specialize in bad credit home loans. This allows you to shop around from multiple lenders at once, making it easier to find one with more flexible loan requirements.
Some lenders may advertise “guaranteed” mortgage approval with no credit check, but you should be very suspicious of these promises. Federal law requires lenders to evaluate a borrower’s ability to repay a loan before approving them. Any lender that doesn’t meet this rule is offering you what is considered a “non-qualified” mortgage (non-QM), which means that it doesn’t follow a set of rules set by the Consumer Financial Protection Bureau (CFPB). Non-QM mortgages usually come with risky features and higher interest rates and costs than qualified loans.
How I Bought A House With No Credit Score
FAQ
Is it possible to get a mortgage without a credit score?
Can you get FHA with no credit?
What is the easiest home loan to get approved for?
Can you get a home loan with a 500 credit score?
Can you buy a house with a low credit score?
You may find yourself in a position of wanting to buy a house but having either a low credit score or none at all. Keep in mind that those are two different situations. A bad credit score generally means your credit score is either poor (300 – 579) or fair (580 – 669).
How to buy a house with no credit?
Negotiate the terms directly with the seller. Remember that while it’s possible to buy a house without credit, it’s essential to explore your options and work with a knowledgeable mortgage professional.They
How do I get a mortgage loan with no credit?
There are several ways to get a mortgage loan with no credit. One is to find a lender that will see beyond your credit score. Another is to look for mortgage options that don’t rely as heavily on credit. And another is to build your credit history. 1. Understand underwriting
Can you get a mortgage if you have no credit?
Here’s a look at what to expect from the process and the options you’ll have. Yes, you can get a mortgage even if you have no credit score, or if you’re looking to avoid a credit check because of bad credit. Here are four strategies to get a no-credit-check mortgage approval: