How to Get Approved for a Mortgage Loan With No Credit History

Getting a mortgage loan when you have no credit history can seem daunting. However, it is possible to get approved if you take the right steps In this article, I’ll explain what no credit mortgage loans are, who they are for, and how to improve your chances of getting approved.

What is a No Credit Mortgage Loan?

A no credit mortgage loan is designed for homebuyers who don’t have an established credit history. These loans allow you to qualify based on factors besides your credit score, such as your income, assets, and down payment amount.

Lenders offer no credit mortgage loans because they understand that some borrowers may not have credit simply because they haven’t needed it. For example you may have always paid cash, had others co-sign loans or just avoided debt altogether. With a no credit mortgage, lenders can still evaluate your ability to repay.

Who is Eligible for a No Credit Mortgage?

To qualify for a no credit mortgage loan, you must meet these requirements:

• No credit score – You cannot have an actual credit score from any of the three major credit bureaus If you have bad credit, these loans are not for you.

• Verifiable income – Lenders will want to see that you have a stable income. Provide recent pay stubs, bank statements, and your W-2s.

• Down payment – Expect to make a down payment of at least 10-20%. The larger your down payment, the better your chances of approval.

• Low debt-to-income ratio – Your total monthly debt payments should not exceed 36% of your gross monthly income.

Tips to Improve Your Chances of Approval

Here are some tips to boost your odds of getting approved for a no credit mortgage:

• Make a large down payment – Putting down 20% or more shows the lender you are financially committed. This can offset the higher risk of lending to someone with no credit history.

• Find a co-signer – Adding someone with good credit to co-sign the mortgage reduces the lender’s risk. Just know that the co-signer will be equally responsible for repaying the loan.

• Apply with a community bank – Smaller banks are often more flexible than big banks when it comes to unconventional loans. Developing a relationship with a local lender can help.

• Use alternative credit – Provide records showing you’ve paid bills and rent reliably over the past 12 months. This demonstrates your ability to make consistent monthly payments.

• Save up reserves – Having 12+ months of mortgage payments in your bank account shows you have enough savings to cover emergencies.

• Make a large down payment – Putting down 20% or more shows the lender you are financially committed. This can offset the higher risk of lending to someone with no credit history.

Types of No Credit Mortgage Loans

Here are some common mortgage programs that offer no credit options:

FHA loans – FHA loans require just a 3.5% down payment for borrowers with credit scores of 580 or higher. With a 10% down payment, you may qualify with no credit score.

VA loans – VA loans help military service members and veterans buy homes with no down payment. While lenders usually require a credit score, exceptions can be made.

USDA loans – For low-to-moderate income borrowers in rural areas, USDA loans offer 100% financing. But you’ll likely need at least a 640 credit score.

Portfolio loans – Local banks may offer portfolio loans designed for those with no credit. Make sure to ask lenders about any home loan programs they have for your situation.

Hard money loans – Hard money loans are risky, short-term loans from private investors. Interest rates are high and fees can be exorbitant. Only use them as a last resort.

Steps to Getting Approved

Follow these steps when applying for a no credit mortgage:

1. Save up funds for your down payment and closing costs. Lenders typically want to see reserves too.

2. Request your credit reports to verify you truly have no credit history. Dispute any errors.

3. Gather all your financial documents – income statements, tax returns, bank records, alternative credit history, etc.

4. Shop mortgage lenders and compare interest rates and fees. Apply with multiple lenders to increase your chances.

5. Be upfront with lenders about your situation. Ask them what else you can provide to improve your application.

6. Get pre-approved – this shows sellers you are serious. Be ready to move fast when you find the right home.

7. Opt for a 30-year fixed rate mortgage without risky features like adjustable rates or balloons. Don’t fall for gimmicks.

Alternatives if You Are Denied

If you get denied for a no credit mortgage, don’t give up hope. Here are some options to build your credit and improve your chances:

• Become an authorized user on someone else’s credit card
• Open a secured credit card and use it responsibly
• Have a family member co-sign a credit card or personal loan with you
• Use a credit-builder loan – make payments to yourself in a savings account
• Dispute any errors on your credit reports

Within 6-12 months of positive payment history, you may be able to qualify for a mortgage. Be patient and focus on demonstrating you can manage credit wisely.

The Bottom Line

Getting a home loan with no credit is challenging but possible. Make a large down payment, provide alternative credit history, and find lenders who offer no credit mortgage programs. With some discipline and effort, you can be well on your way to owning your own home.