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.
Getting a mortgage when you have no credit score can seem daunting. You may wonder how lenders will assess your ability to repay a loan without the aid of a credit score The good news is that there are options available for no score mortgage loans. In this comprehensive guide, we’ll walk you through everything you need to know about getting approved for a mortgage with no credit score
What is a No Score Mortgage Loan?
A no score mortgage loan is simply a home loan for borrowers who don’t have a credit score from one of the three major credit bureaus (Experian Equifax, TransUnion). Lenders generally prefer applicants to have a credit score because it gives them an easy way to evaluate creditworthiness. But if you have no credit score it doesn’t mean you can’t qualify for a mortgage.
You may not have a credit score for several reasons
- You’re a recent immigrant with no U.S. credit history
- You’ve always paid with cash and never used credit
- You had credit in the past but closed all accounts
The most common no score borrowers are millennials buying their first home. Many younger adults don’t have long enough credit histories to generate a FICO score.
Qualifying for a No Score Mortgage
When you apply for a no score mortgage, the lender has to manually underwrite your loan. Here are some of the things they will look for:
On-Time Rent Payments: Your rental payment history offers proof that you pay bills regularly. Expect to show 12 months of on-time rent checks. A copy of your lease is also required.
Utility Payments: Payment records for utilities like electricity, water, gas, phone, or cable help verify your ability to pay monthly bills.
Down Payment: A larger down payment reduces the lender’s risk. Expect a minimum 10-20% down payment if your credit is limited.
Stable Income: Steady employment and income are very important. Expect to provide pay stubs, tax returns, and bank statements.
Low Debt-to-Income Ratio: Your total monthly debt divided by gross monthly income can’t exceed 36-43%.
High Liquid Reserves: Expect to have 6-12 months of mortgage payments in cash reserves.
As long as you can check all those boxes, you have a good chance of no score mortgage approval!
Types of No Score Mortgage Loans
You have several options when it comes to no score mortgage programs:
FHA Loans – Allow manual underwriting for borrowers with limited credit. Down payments as low as 3.5% are permitted.
VA Loans – Offer no minimum credit score requirements for veterans and active duty military. No down payment is required.
USDA Loans – Available for low-income borrowers in rural areas. These loans don’t require a down payment or minimum credit score.
Conventional Loans – Programs like Fannie Mae HomeReady and Freddie Mac Home Possible allow for no score mortgages with as little as 3% down.
Portfolio Loans – Offered by community banks, credit unions, and online lenders. May have more flexible underwriting criteria than government programs.
Hard Money Loans – Asset-based lending from private investors. Higher rates and fees but can close in as little as 5 days with no credit check.
7 Tips for Getting Approved
If you want the best shot at no score mortgage approval, here are some top tips:
1. Make a large down payment – At least 20% down shows the lender you’re financially committed.
2. Find a co-signer – Adding a co-signer with good credit can give your application a boost.
3. Maintain low debt – Don’t open new credit accounts before applying for a mortgage.
4. Choose lenders wisely – Online lenders, credit unions, and community banks may be more flexible.
5. Ask about exceptions – See if lenders can make exceptions to high reserve or down payment requirements.
6. Explain past credit issues – Be ready to discuss any previous derogatory credit events.
7. Consider a hard money loan – Alternative financiers can close loans in days with less stringent requirements.
No Score Mortgage Costs
While interest rates are generally the same for no score borrowers, you may pay more upfront fees or have to buy private mortgage insurance (PMI). Here are costs to look out for:
- Origination fees of 1-2% of the loan amount
- Private mortgage insurance premiums if less than 20% down
- Higher appraisal fees due to added risk
- Application or underwriting fees of around $500
The best way to get lower costs is to shop around and compare quotes from multiple lenders. Don’t be afraid to negotiate!
Alternatives to a No Score Mortgage
If you’re having trouble getting approved for a no score mortgage, here are two alternatives to consider:
1. Establish Credit – Open a secured credit card or become an authorized user on someone else’s credit card. Use it lightly for 6-12 months to start building a credit profile.
2. Add a Co-Borrower – Bringing on a borrower with an established credit history can help you meet eligibility requirements more easily.
The Bottom Line
Mortgage approval with no credit score is challenging but definitely possible. The keys are providing lots of financial documentation, keeping debts low, making a sizable down payment, and partnering with the right lender.
While the process takes more time and scrutiny, thousands of borrowers with limited credit histories purchase homes every year. If homeownership is your dream, don’t let the lack of a credit score stop you. With persistence and the right strategy, you can get the no score mortgage approval you need.
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.
How to get a mortgage with no credit score (or credit check)
Yes, you can get a mortgage even if you have no credit score, or if you’re looking to avoid a credit check because of bad credit. Here are four strategies to get a no-credit-check mortgage approval:
Whether you have poor credit or no credit score at all, adding a creditworthy cosigner to your mortgage loan can be one way to improve your approval odds.
A cosigner is someone who agrees to share responsibility for your loan and its timely repayment — even if you’re the one technically making payments each month. Your cosigner may be a spouse, parent, sibling or even a close friend who is willing to be added to your mortgage. It’s important to note that your loan and its repayment history will be reported to their credit, too.
The larger the down payment you offer to make on a home, the less risk the lender has to take on by offering you a mortgage loan. If you were to default on your loan repayment, the lender has a better chance of recouping their money if you’ve already contributed a significant portion and/or there’s notable equity established in the home.
If you are struggling to qualify for a new home mortgage with your existing credit history, offering a large down payment may help improve your odds. Additionally, some lenders and mortgage loan products may require a larger down payment if your credit score is lower.
During the loan underwriting process, a lender analyzes a borrower’s level of risk in regards to repayment of their new loan. This means looking at factors such as income, employment status, existing debt and other expenses to see if the borrower can reasonably make their monthly payments without struggling.
If you have an existing relationship with a credit union or local bank, you may have a better chance of mortgage loan approval there. That’s because credit unions often have more flexible lending requirements and a more personalized approach. If you have other products through that institution — such as an auto loan or credit card — and have a healthy payment history on those accounts — the institution is likely to take this creditworthiness into account.
Additionally, you may have better luck applying with online lenders, some of whom specialize in bad credit home loans. This allows you to shop around from multiple lenders at once, making it easier to find one with more flexible loan requirements.
Some lenders may advertise “guaranteed” mortgage approval with no credit check, but you should be very suspicious of these promises. Federal law requires lenders to evaluate a borrower’s ability to repay a loan before approving them. Any lender that doesn’t meet this rule is offering you what is considered a “non-qualified” mortgage (non-QM), which means that it doesn’t follow a set of rules set by the Consumer Financial Protection Bureau (CFPB). Non-QM mortgages usually come with risky features and higher interest rates and costs than qualified loans.