No Credit Score Home Loans: How to Get Approved in 2023

Buying a home is an exciting milestone. But for many first-time buyers, a lack of credit history can seem like a roadblock. If you have no credit score, is homeownership still possible? Absolutely! While challenging, getting approved for a mortgage with no credit score is achievable through the right lenders and loan programs.

As a first-time home buyer with no credit score myself, I learned quickly that this route requires patience and persistence. Traditional lenders shut me down repeatedly. But I didn’t give up. Now I’m thrilled to be settling into my new place.

If buying a house with no credit score is your goal, here’s what I’ve discovered about navigating the mortgage process successfully:

Why Lenders Want to See Your Credit Score

First, it helps to understand why lenders care so much about credit scores in the first place. Your score gives them insight into how likely you are to repay debts responsibly.

The most commonly used credit scoring model is FICO. FICO scores range from 300 to 850. The higher the number, the lower the perceived risk.

Lenders view applicants with no credit score as riskier borrowers. With no track record to judge, they can’t easily predict whether you’ll pay the mortgage on time every month.

That’s why getting a mortgage with no credit score can be challenging But not impossible if you approach it strategically.

Minimum Credit Score Requirements by Loan Type

Although every lender sets their own criteria here are the typical minimum credit scores required for popular mortgage programs

• FHA loans – 500 to 580
• VA loans – No minimum, but often 580 to 620
• USDA loans – 640
• Conventional loans – 620

FHA loans offer the most flexibility for thinner credit files. VA and USDA loans can also be options if you meet their eligibility requirements.

Manual Underwriting for No Credit Score Mortgages

The best way to get approved for a home loan without a credit score is through manual underwriting. This involves a hands-on review of your financial background by a mortgage officer.

With manual underwriting, lenders look beyond your credit report. They’ll consider other factors like your income stability, assets, down payment amount, and history of paying bills on time.

Gathering documentation to prove these strengths is key. I put together a binder with two years of bank statements, tax returns, pay stubs, and landlord references. This convinced my lender I could handle the mortgage, even without credit.

7 Strategies for Buying a House With No Credit Score

If you want to buy but have no credit history, here are tips that can boost your chances of getting approved:

1. Add a Co-Signer

Bringing on a co-signer with a strong credit profile makes lenders feel more secure. Be sure the co-signer understands they’ll be responsible if you can’t make the mortgage payments.

2. Work With Credit Unions

Smaller lenders like community banks and credit unions tend to be more flexible than big banks. They focus more on personal relationships than credit scores.

3. Ask Sellers About Financing

Some sellers may be willing to finance the sale themselves. This bypasses traditional lending requirements. Make sure to involve a real estate attorney though.

4. Offer a Large Down Payment

A down payment of 20% or more can help offset a missing credit score in lenders’ eyes. I saved for years and put down 30% to improve my approval odds.

5. Seek Out First-Time Homebuyer Programs

State and local governments often have special low down payment mortgages for first-time buyers. These programs may offer credit leniency.

6. Partner With a Mortgage Broker

An experienced broker can match you with lenders open to non-traditional credit profiles. Brokers have access to programs you can’t easily find as a buyer.

7. Explain Your Situation

If you have a legitimate reason for no credit, share this with lenders upfront. For example, I had focused on school and lived at home before buying my house. Context can help.

When No Credit Score Mortgages Make Sense

Trying to get a mortgage with no credit only makes sense in certain circumstances, like:

• You’re a first-time homebuyer straight out of school
• You recently immigrated to the U.S.
• You’re from a cultural background that avoids debt
• You’ve always paid with cash or debit

In cases like these, the lack of credit history doesn’t necessarily signal you’re irresponsible with money. A manual underwriting exception could be warranted.

But if your credit is thin because of active avoidance or mismanagement of debts, lenders will be much warier. Improving your credit first would be the smarter move.

Low Credit Scores vs. No Credit Scores

Lenders sometimes view zero credit history as less risky than a very low credit score. Here’s why:

If you have a low score, it’s likely because of defaults, late payments, collections, or other negative marks. This damages credibility with lenders. They see you as an unreliable borrower based on your track record.

With no credit history, the slate is blank. Lenders have nothing to indicate whether you’d be responsible or not. Approach them with ample financial docs and you can convince them you’re actually low risk.

So while counterintuitive, a completely empty credit file is often better than a file full of red flags.

Minimum Credit Scores for Popular Loan Types

Here are the typical baseline credit scores needed to qualify for some of the most common mortgage programs:

FHA loans – 500 to 580

VA loans – No official minimum but often 580 to 620

USDA loans – 640

Conventional loans – 620

Again, FHA loans offer the most flexibility for thin credit profiles. But every lender has final say over their own minimum score requirements. So you may need to shop around to find one willing to approve you.

How to Build Credit From Scratch

Getting approved for a mortgage with no credit score is possible. But having at least a fair credit profile in the mid-600s can make the process much smoother.

Here are effective ways to start building credit if you’re starting from zero:

• Become an authorized user on someone else’s credit card
• Open a secured credit card and use it lightly
• Use credit builder loans and credit builder cards
• Report rent payments to Experian RentBureau
• Set up utility bill payments to report to credit bureaus
• Open a credit-building checking account

Within 6 to 12 months of smart credit management, you can establish enough history to qualify for an entry-level mortgage.

Alternatives to Get Financing With No Credit Score

If you need to buy sooner, here are a couple alternatives to getting a traditional mortgage:

Portfolio Loans – Some lenders hold and service loans themselves instead of selling them to investors. They have more leeway on approval criteria.

Mortgage Credit Certificates (MCCs) – Government programs provide tax credits to first-time buyers, incentivizing lenders to approve them.

Seller Financing – The seller carries the loan instead of a bank. Make absolutely sure the terms benefit you.

Hard Money Loans – Specialty lenders fund short-term loans at higher rates, using the property as collateral.

These options tend to be more costly overall. But they can work as a temporary bridge to homeownership until you build credit.

Next Steps to Buying a House With No Credit

First-time home buying without an established credit history takes persistence. But with a solid financial foundation and the right lender, you can make it happen.

If you’re ready to start the process, here are some tips:

• Get your full credit reports to understand where you stand
• Research local first-time buyer programs
• Talk to lenders that offer manual underwriting
• Gather 2+ years of financial statements and payment records
• Highlight income stability, assets, and any down payment funds

Stay patient through setbacks, be upfront with lenders, and highlight your strengths. You can achieve the dream of homeownership, even starting from zero!