Can I Get A Home Loan With No Credit? A Guide to Mortgage Options

Getting approved for a mortgage can feel like an impossible task if you have little to no credit history. You may assume lenders will automatically reject your application without a decent credit score to review. However, there are ways to get a home loan even with no credit or limited credit history

In this comprehensive guide we’ll explain everything you need to know about qualifying for a mortgage with no credit including

• How lenders assess creditworthiness without a credit score
• Tips to improve your chances of approval with no credit
• Types of loans that allow no credit mortgage approvals
• Steps to start building credit history

How Do Lenders Evaluate Borrowers With No Credit Score?

Traditional lenders generally rely heavily on credit scores when approving borrowers for mortgages. Credit scores give insight into how well you’ve managed any credit obligations in the past. However, it is possible to get mortgage approved if you have no credit score at all.

In cases where a borrower has no credit score, the lender has to dig deeper to analyze their overall creditworthiness Here are some of the ways lenders will assess whether you are likely to repay mortgage debt if you don’t have a credit score

Review Alternative Credit References

The lender will ask for alternative credit references to understand your history of managing financial obligations. This includes reviewing:

• Rental payment history: Proof you’ve paid rent on time for at least 12 months, like cancelled checks or bank statements.

• Utility payment history: Records showing 12 months of on-time payments for bills like electricity, gas, cable, internet, etc.

• Other monthly expenses: Payment histories for things like auto insurance premiums, cell phone bills, medical bills, etc.

As long as you have a solid history of on-time payments, these items help demonstrate your creditworthiness.

Verify Income and Assets

While income and assets are reviewed for all borrowers, they carry more weight when traditional credit history is unavailable. Expect lenders to closely verify your income sources, employment history, and current account balances to confirm you earn enough to afford mortgage payments.

Review DTI Ratio

Debt-to-income (DTI) ratio calculations are very important in no credit score cases. Your lender will look at your total monthly debt payments (including the new mortgage) vs. your gross monthly income. Expect more restrictive DTI requirements.

Assess Down Payment Amount

No credit borrowers often have to provide a larger down payment, typically at least 10-20%. The more cash you put down, the less overall risk for the lender.

Order Manual Underwriting

Ask your lender to process your application through manual underwriting. An actual person will review your profile instead of just relying on an automated underwriting system that may deny no credit applications.

5 Tips to Improve Your Chances of Mortgage Approval With No Credit

While getting a no credit mortgage is possible, it can be challenging. Here are some pro tips that may help improve the likelihood of getting approved:

1. Add a Creditworthy Cosigner

Bringing a cosigner with a strong credit history onboard shares the risk. Their good profile helps offset your lack of credit for the lender. Just know they’ll be equally responsible for the loan.

2. Apply With a Community Bank

Smaller banks and credit unions offer more flexibility and personalized service. Existing accounts like loans or credit cards at the institution help too.

3. Shop With Online Lenders

Online lenders provide easier comparison shopping so you can find ones catering to limited credit borrowers.

4. Offer a Large Down Payment

Putting down 20% or more gives the lender reassurance so they have less loaned money at risk if you were to default.

5. Request a Manual Underwriting

Ask upfront for a manual review to avoid an instant denial from automated underwriting used by bigger lenders.

Types of Loans That Allow for Mortgage Approval With No Credit

Certain mortgage programs provide more flexibility for borrowers without established credit histories. Here’s an overview of loans that allow approvals even with no credit score:

FHA Loans

FHA loans insured by the Federal Housing Administration are a top choice for no credit borrowers. They require just 3.5% down and allow alternative credit references like rent payment history. Minimum credit score is just 500.

VA Loans

Veterans Affairs mortgages help eligible military buyers. No minimum credit score is required for VA loans. Recent veterans can provide alternate credit profiles with rental, utilities, or other payment histories.

USDA Loans

For low-to-moderate income borrowers in rural areas, USDA loans are an option. They require no down payment and no minimum credit score. Income limits apply based on location.

Portfolio Loans

Some community banks and credit unions offer portfolio loans they hold themselves. More flexible qualifications than conventional loans allow approvals with no credit score for qualified applicants.

Hard Money Loans

While expensive and risky, hard money loans rely on collateral value rather than credit scores. Approval is easier but interest rates are very high, and terms are usually under 5 years.

Steps to Start Building Credit History

Working to establish credit in your own name will expand mortgage options in the future. Here are some ways to start building a credit history if you currently have none:

• Apply for a secured credit card and make small purchases and payments monthly. This shows you can use credit responsibly over time.

• Become an authorized user on a family member or friend’s credit card account. Their good history can help build your score.

• Open a credit builder account and repay the balance as agreed over time to demonstrate reliable payment habits.

• Apply for a credit-building loan or secured personal loan and repay it successfully.

• Pay all bills like utility bills and wireless phone service on time and in full each month.

Within 6-12 months of smart credit habits like these, you’ll start establishing a credit profile and score to make mortgage qualification easier.

The Bottom Line

Don’t let the lack of a credit score deter you from seeking mortgage financing. While approvals without credit are challenging, they are possible in many cases. Seek lenders like community banks, credit unions, and online lenders that offer more flexibility. Plus utilize no credit mortgage programs like FHA, VA, and USDA loans. With the right approach, you can be on the path to homeownership even without established credit history.