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 house 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 there is no track record to judge their likelihood of repaying debts. Thankfully, there are still options for getting a home loan even if you don’t have a credit score.
In this comprehensive guide, we’ll explain everything you need to know about getting approved for a no credit house loan. We’ll cover
- Why you may not have a credit score
- Pros and cons of no credit vs bad credit
- Steps to take before applying for a mortgage
- Types of loans available with no credit
- Tips to improve your chances of approval
Why You Might Not Have a Credit Score
There are a few common reasons why someone may not have a credit score:
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You’re young. If you’re a teenager or in your early 20s, you probably haven’t had time to establish credit yet.
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You’re new to the country. Immigrants often won’t have U.S. credit histories at first.
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You use cash Some people simply prefer not to use credit cards or loans
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You’ve been out of the credit world. Elderly people or those in the military may go years without using credit.
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You’ve avoided credit due to past issues. Bad experiences may have scared you away from using credit.
No matter the reason, having no credit score creates an extra challenge when applying for a mortgage. But it’s not an insurmountable one.
No Credit vs. Bad Credit: Key Differences
It’s important to understand that having no credit is very different from having bad credit in the eyes of lenders.
If you have bad credit, it means you have a history of missing payments, defaulting on debts, or other financial mismanagement. This makes lenders see you as a high risk.
On the other hand, no credit simply means you lack any credit accounts that the major credit bureaus can score. You may manage money just fine, but have no track record to prove it.
Many lenders actually prefer applicants with no credit vs. bad credit. It shows you have a clean slate instead of a negative history.
Steps to Take Before You Apply for a No Credit Mortgage
Getting approved for a home loan with no credit takes some extra preparation. Here are some important steps to take:
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Save up a sizable down payment. The larger down payment you can make, the less overall risk for the lender. Shooting for 20% down or more can really help your chances.
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Keep your income and debts low. Lenders will look at your debt-to-income ratio. Keeping other debts very low ensures your mortgage payment will be affordable.
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Gather alternative credit references. Utility bills, rent payments, insurance payments, and more can help demonstrate you pay bills on time even with no credit cards.
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Get a cosigner. Adding someone with strong credit as a cosigner on the mortgage can give you a big boost.
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Explain any red flags. If you have past evictions or other issues that might show up on a background check, be ready with explanations.
Types of Loans Available With No Credit
You have several options for mortgage programs that may work when you don’t have a credit score. Here are some top choices:
FHA Loans
FHA loans are backed by the Federal Housing Administration and are ideal for those with weaker credit or financial profiles.
Key perks:
- No minimum credit score requirement
- Only 3.5% down payment needed
Downsides:
- Require mortgage insurance unless you put down over 20%
- Debt ratios must be below 31%/43% with no credit score
VA Loans
VA loans help military members, veterans, and their spouses buy homes.
Benefits include:
- No minimum credit score
- No down payment required in most cases
- No monthly mortgage insurance
The catch: You or your spouse must have served in the military to qualify.
USDA Loans
USDA home loans are for low-to-moderate income buyers in designated rural areas.
Top features:
- 100% financing available – no down payment required
- More relaxed debt ratio requirements
- No minimum credit score
The limitations: Home must be in an eligible rural location. Income limits apply.
Manual Underwriting
Asking for manual underwriting can help if you were already denied for having no credit score. A manual underwriter will personally review all the details and nuances of your application rather than just relying on an automated system. This gives you a better shot at explaining your unique situation.
Non-Traditional Credit Loans
Some lenders offer no credit check mortgage programs that consider “non-traditional credit” like rent payments, utility bills, insurance payments, and more. These loans verify your payment habits in other ways besides traditional credit reports.
The big challenge is finding a lender willing to actually consider and approve these alternative credit items. Online lenders are often more flexible.
Tips to Boost Your Chances of Approval
Getting approved for a no credit home loan is tricky but possible. Here are some tips that can help your odds:
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Make a large down payment – At least 10-20% down or more gives the lender less risk
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Lower your DTI – Keep all debts like car loans and student loans to a minimum
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Get a cosigner – Adding someone with good credit helps compensate for your limited history
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Apply with smaller lenders – Small banks, credit unions, and online lenders tend to be more flexible
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Leverage existing financial relationships – For example, apply with a bank where you already have a checking account in good standing
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Highlight past on-time rent payments – Provide documentation like old checks and leases
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Order your own credit reports – Make sure there are no errors or red flags on your reports before the lender runs their check
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Build credit ASAP – Open a secured card and pay bills on time to start accumulating positive payment history
The bottom line is getting approved for a home loan without credit is challenging but very possible if you prepare thoroughly and present yourself as a low-risk applicant. With persistence and the right approach, you can join the ranks of homebuyers even with no credit history.
How lenders verify nontraditional credit histories
Even with documentation provided by the potential borrower, lenders will generally take additional steps to verify the payment history. Often, this comes in the form of an Anthem Report — a type of nontraditional credit report that can be provided to independently verify all the information if you aren’t able to provide canceled checks or bank statements for alternative credit accounts. This will generally only work if the accounts that need to be verified are verifiable through a third party.
Your lender will indicate if an Anthem Report is necessary, and they will order the report. You will need to provide them with the name, contact number and account information for each item for the report to be completed, and may need to provide some of the proof of payment documentation needed to produce the report.
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 I Bought A House With No Credit Score
FAQ
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