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No Hassle Lending: Can You Buy a House With No Credit?

If you’re preparing to buy a home, you have likely already read up on what kind of documentation is needed to qualify for a home loan. In the process of doing so, you’ve probably noticed that a credit score is one of the biggest factors that lenders use to determine what you can afford.

But what if you’re unfamiliar with your credit score or you don’t have one at all? In this article, we’ll go over what a credit score is, what it reflects about your finances, and how you can apply for a loan even if you don’t have a credit score.

What Are Credit History, Credit Reports, and Credit Scores?

In short, a credit score is an easy way of representing how well you have paid off your debt in the past. A credit score utilizes information from lenders of credit cards or loans.

That information is then turned into a score that reflects how regularly and promptly you have paid your debt over time, otherwise known as your credit history. Your credit history is reflected by your credit report, which includes your credit score as well as other credit-related information.

The Difference Between No Credit and Bad Credit

If you have never opened a credit card before or you’ve never had any loans to your name, you won’t have a credit score. But don’t worry! Although not having a credit score is uncommon and makes qualifying for a loan a little harder, no credit is not the same as bad credit.

Bad credit, or a low credit score, comes from having a history of debt, late payments, failures to pay, bankruptcy, or foreclosures under your name. On the typical credit score scale between 300 and 800, a score of 630 or lower is typically regarded as a bad score.

Borrowers with bad scores can still qualify for some loans. However, they typically always have to pay more money in the form of a down payment as well as face higher interest rates on loans.

How Much Credit History Is Needed To Buy A House?

When lenders perform a credit check on your score, they will pull up to six years’ worth of information from your credit history. The lengthier and more detailed your credit history is, the more records there will be of your ability to make on-time payments and pay off your debt. This is why maintaining your credit score over time is so helpful.

How To Buy A House With No Credit

If you don’t have a credit score, you can still apply for a mortgage loan. However, not having a credit score means that the other aspects of your financial situation, like the amount of money you have saved up, your employment, and your history of making payments on bills or paying rent will all be looked at closely during the lender’s underwriting process.

Applying for a home loan with no credit score is difficult and it comes with a longer process in terms of paperwork for both you and your lender to complete. However, it is still possible to qualify for a home loan without a credit score if you meet other requirements. Here are some ways to optimize your chances of getting a home loan without any credit history!

Apply For An FHA Loan

An FHA loan is a low down payment mortgage option that is offered by traditional lenders yet backed by the Federal Housing Administration (FHA), which is a government entity that helps regulate the housing market by keeping it accessible to everyday Americans.

Typically, an FHA loan with a 3.5% down payment requires a credit score of at least 580. However, you can secure this loan with a credit score as low as 500 if you agree to pay a down payment of at least 10% of the home purchase price.

However, as per FHA regulations, lenders are not permitted to reject an application for a mortgage loan simply because the borrower doesn’t have a credit score. Therefore, prospective borrowers without credit histories can provide other proof of financial responsibility.

Get A Cosigner

One option for getting a loan with a good interest rate and fair down payment amount is to ask someone to cosign the loan with you. A cosigner will need to have good credit and meet the income qualifications to be a cosigner in the first place.

If you default on your loan, your lender will hold your cosigner responsible for your lack of loan repayments. This can create tension if your cosigner is a friend or family member, so it’s very important to choose a cosigner who you trust.

Plus, you need to make sure you don’t sabotage them and fail to pay your rent on time because this can severely damage your relationship. If you will be able to afford mortgage payments on your own but you can find a cosigner, lenders will view you as less risky and they may be able to offer better interest rates or a lower down payment.

Go Through The Underwriting Process

Underwriting happens on every loan. It’s the process that your lender uses to verify your financial stability by examining documentation of your income, debt, and bank activity. If you don’t have a credit score, you can opt for a manual underwriting process whereby all of your documentation will be looked through in close detail.

Manual underwriting allows other records of your financial stability to stand in for your credit score. You can also ask for letters that prove your ability to make consistent, on-time payments. Usually, you’ll request these letters from previous landlords and utility companies to help support your financial documentation.

Save for a Large Down Payment

Mortgage lenders may be more amenable and more likely to qualify you for a loan without demonstrated credit history if you have a larger down payment to offer. After all, more capital upfront means less risk for them.

The more money you have to offer, the higher the chances are that lenders will consider offering you a loan without requiring a credit score. Aim to save around 20% or more of your estimated purchase price for a down payment. This will help keep your options open if you don’t have a credit score.

Consider Smaller Lenders

Smaller lenders often have more lenient lending options than bigger banks do. Choosing local, smaller-scale lenders or banks will expand the options available to you when it comes to qualifying for a loan without a credit score.

Start by setting up an appointment with loan officers at a few different institutions to see what they offer and what your available options are. The more pre-approvals you receive, the better idea you’ll have of which lender will work best for you.

Qualifying for a Mortgage Loan Without Credit History

Having a good credit score goes a long way when it comes to qualifying for a mortgage loan as a borrower. However, there are options available for those who haven’t had credit cards or loans in their name before. If you don’t have a credit history, there are approaches that you can take.

Without credit history, it’s best to apply for pre-approval letters with smaller lenders who have more lenient guidelines. This will give you solid options to choose from because they will be more likely to loan you money.

You’ll probably have to save up for a higher down payment and consider finding a cosigner. Plus, you will have to provide extensive documentation of your financial history. However, having proof of good standing on past payments can help lenders recognize that you are capable of responsibly paying off a mortgage, qualifying you for a loan on a new home.

 

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All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 23, 2022