Getting a Home Loan With No Credit Check – Everything You Need to Know

Buying a home is an exciting milestone in life. However for many people with limited credit history qualifying for a mortgage can seem daunting. If you’re worried that your lack of credit will prevent you from purchasing a home, don’t fret. There are options for getting home loans with no credit check.

In this comprehensive guide, I’ll walk you through everything you need to know about getting approved for a mortgage with no credit history.

What Exactly Does “No Credit Check” Mean?

When lenders talk about “no credit check” mortgages, they don’t literally mean they won’t check your credit at all By law, lenders are required to make sure borrowers have the ability to repay their loans. This involves looking at your income, assets, debts, and credit history

What “no credit check” actually refers to is that the lender won’t rely solely on your credit scores or reports from the major credit bureaus (Experian, Equifax, and TransUnion) to approve your loan. Instead, they’ll verify your creditworthiness in other ways.

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

The short answer – yes, you can absolutely qualify for home financing even if you don’t have a credit score yet. While lenders prefer to see a solid credit history, there are other factors they can use to assess your reliability as a borrower.

Here are some common ways lenders evaluate mortgage applicants with no credit:

• Reviewing your rental history – Having on-time rent payments shows you can manage monthly housing expenses responsibly.

• Checking alternate credit sources – Utilities, cell phone bills, insurance payments, etc. demonstrate your ability to pay ongoing bills.

• Verifying income and assets – Steady income and money in the bank count in your favor.

• Requiring a larger down payment – Putting more money down can offset the higher risk of no credit history.

• Finding a co-signer – Adding someone with good credit helps assure the lender of on-time payments.

• Using “manual underwriting” – An actual person reviews your application holistically rather than just a credit scoring model.

As you can see, there are plenty of options for proving your creditworthiness outside of traditional credit reports. While the process may take more time and paperwork, responsible borrowers can certainly qualify for home loans without established credit.

What’s the Difference Between No Credit and Bad Credit?

There’s a big distinction between having no credit history versus having bad credit.

If you have no credit record, the lender has nothing to review – good or bad. You’re essentially a blank slate.

On the other hand, bad credit means you have a history of missed payments, defaults, foreclosures, or bankruptcies. These red flags make lenders leery about taking a risk on you.

In most cases, you stand a better chance of approval if you have no credit score rather than a low one riddled with negative marks. While building some positive credit first is ideal, don’t let past mistakes discourage you from applying for a mortgage. There are programs available for borrowers with damaged credit too.

How to Get a Mortgage With No Credit Score

If you’ve determined that moving forward without established credit is your best option, here are some tips to boost your chances of getting approved:

Make a Large Down Payment

Putting more money down shows the lender you’re financially committed to the home. It also means you have to borrow less, making the loan inherently less risky.

Aim for at least 10-20% if possible. Conventional mortgages typically require 3-5% down, but limited credit borrowers often have to put 10-20% down.

Add a Co-signer

Asking a relative or friend with good credit to co-sign your mortgage improves the chances of approval. Their positive payment history reassures the lender you’re good for the loan.

Just know that co-signers are equally responsible for the debt. Make sure they fully understand the obligation before agreeing.

Work With Credit Unions

Since credit unions are member-owned nonprofits, they can be more flexible than traditional banks. Developing a relationship over time through savings accounts, auto loans, or credit builder loans can help your case.

Shop Online Lenders

Online and non-bank lenders are gaining market share, partly by catering to underserved borrowers. They may offer more customized home loan programs.

Ask for Manual Underwriting

Automated underwriting systems aren’t designed for thin credit files and often trigger denials. But a manual review by an actual person could lead to approval after looking at your application holistically.

Only Apply for “Qualified” Mortgages

Steer clear of “non-qualified” mortgages that lack safeguards dictated by the Consumer Finance Protection Bureau. These come with risky features like balloons payments and are best avoided.

What Credit Score is Needed to Buy a House?

While every lender has their own standards, here are some general credit score guidelines for popular mortgage programs:

• Conventional: 620 minimum
• FHA: 580 minimum (may go lower with 10%+ down)
• VA: No set minimum, but most lenders want 580+
• USDA: Typically requires 640+

So while fairly good credit is recommended, you can potentially get approved for FHA and VA loans with scores in the 500s. The keys are compensating factors like a substantial down payment and showing solid non-credit payment records.

How to Build Credit From Scratch

Building some credit first will definitely widen your mortgage options. But don’t worry if you have to start from zero – here are some tips:

• Become an authorized user on someone else’s credit card. You benefit from their positive history.

• Open a secured credit card and use it lightly. Make sure to always pay the monthly bill on time and in full.

• Use credit builder loans offered by credit unions and consumer finance companies. They report on-time payments.

• Take out a credit-building small loan from companies like Self Lender. Make all monthly payments.

• Only apply for credit you actually need. Too many new accounts too fast looks risky.

Be patient and let your credit develop gradually. In 6-12 months you can have enough positive history to qualify for a mortgage.

Alternative Ways to Verify Creditworthiness

If you need a home loan now and can’t wait to build robust credit files, lenders can confirm your reliability in other ways, including:

Document Rental Payment History

Provide 12 months of on-time canceled checks or bank statements. Having steady housing payments in your name is crucial.

Show Utilities in Your Name

Gas, electric, water, cable bills can demonstrate your ability to manage recurring expenses.

Give Payment Records for Other Bills

Cell phones, car insurance, medical bills, gym memberships, etc. all help prove you regularly meet financial obligations.

Let Lenders Pull an Alternative Credit Report

A product like LexisNexis RiskView looks at things like utility payments and public records rather than just standard credit reports.

Share Bank Statements

Consistent income deposits, money saved, and paying bills on time paint the picture of a responsible borrower.

Bring as much supplemental documentation of timely payments as you can. The more data available, the better.

Types of Mortgages for Borrowers With No Credit History

Here are some of the most common home loan programs available if you need financing with no credit:

FHA Loans

FHA mortgages are popular with first-time buyers and those with weaker credit because they’re backed by the Federal Housing Administration. Requirements include:

• At least 3.5% down payment

• Total debt-to-income under 43%

• Credit scores as low as 500 accepted when paired with 10%+ down

VA Loans

VA loans help veterans and service members purchase homes with zero down payment required. Credit scores can go below typical cutoffs when using manual underwriting.

USDA Loans

For moderate income borrowers purchasing in designated rural areas, USDA loans offer 100% financing. But they do want applicants to have at least 12 months of alternative credit history.

Bank Statement Loans

These mortgages offered by specialized lenders qualify you based on your monthly income and expenses per your bank statements rather than credit reports.

Hard Money Loans

If you can’t qualify for traditional financing, hard money loans from private investors are an option. But their high rates and fees make them best for short-term use.

Owner Financing

Some sellers offer owner financing where they act as the bank. This works well when you’ve built a relationship with the current homeowners.

Final Thoughts on Home Loans With No Credit Checks

As you can see, mortgage approval with no credit history is definitely achievable if you take the right steps. Work on documenting your timely rent, utility, and other payments.

Be ready to provide lots of financial paperwork to give lenders peace of mind. Apply both online and with