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For most borrowers, your credit score (and credit history) play a significant role in your ability to buy a house. A good credit score typically makes the process easier and more affordable, while a poor credit score has the opposite effect. But what if you have no credit score at all? Here’s how it could impact your home-buying options.
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MORE: See our top picks for mortgage lenders for bad credit.
Credit’s role in buying a house
If you’re buying a home in cash, your credit typically won’t come into the equation. But if you need a mortgage loan to finance the purchase, credit plays a large part.
That’s because most mortgage programs (and lenders) have minimum credit score requirements you must meet. For FHA loans, it’s 500 to 580 (depending on the size of your down payment). For conventional loans, you’ll typically need a score of at least 620.
Mortgage lenders also look at your credit history, including how often you’ve been late on payments and how long you’ve had accounts in good standing, when evaluating your loan application. These factors indicate the level of risk associated with your borrowing and your likelihood of making timely monthly mortgage payments.
Usually, a high credit score and a long history of paying your bills on time will make it easier to qualify — and often get you a lower interest rate too. A low credit score or a history of late payments will typically make it harder to get a mortgage and increase your interest rate.
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See the current mortgage rates by credit score.
Bad credit vs. no credit
To be fair, having bad credit isn’t the same as having no credit. With a poor credit score or a track record of late payments, mortgage lenders see you as relatively irresponsible with your money and the loans you take out.
With no credit, it simply means you have less experience with borrowing cash, which is not necessarily a negative — it’s just that your financial habits are less clear to the lender.
The problem is that lenders have no way to gauge your risk without a credit history to use as a reference. How likely are you to make your payments? How responsible are you with your money? You’ll need to address these things to qualify for a mortgage loan.
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Can you buy a house with bad credit?
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How to buy a house with no credit
Fortunately, there are ways to buy a house without a credit history. It takes being strategic, though, and you’ll want to plan for your home purchase well in advance of making an offer.
Here’s what you’ll need to do:
Pick the right mortgage lender
The first step is to select the best mortgage lender for your situation. Some lenders specialize in serving non-traditional borrowers: those who don’t work traditional 9-to-5 jobs or who lack a strong credit history. They may even offer specific loan products for these cohorts.
Smaller lenders, like local credit unions, may also have more leeway in who they can loan to, so you’ll want to look at various mortgage providers before choosing who to apply with. Some national lenders, such as New American Funding, make qualifying with no credit score easier.
Choose the right loan program
The loan program you choose matters too. For example, FHA loans typically require a credit score of 580 or higher to qualify. However, if you don’t have any credit history at all, an FHA loan lender may allow you to use non-traditional sources to prove your ability to pay — things like past rent payments or proof of paid utility and insurance bills. This could make it easier to qualify.
There are also non-qualified mortgages (also known as non-QM loans), which often allow you to qualify for your mortgage without the typical credit or financial paperwork.
Another option is asking lenders about loans that allow for manual underwriting. This is when an underwriter verifies your financial capabilities step by step, rather than using automated computer algorithms, as lenders often do with many types of mortgages. Manual underwriting can help you qualify when you may not be the picture-perfect borrower on paper.
Offset the risk
Since you don’t have a credit history or credit score to prove that you’re financially responsible, you’ll want to show the lender you’re a low-risk borrower in other ways. This could mean offering a substantial down payment. In this case, the lender has to loan you less and, therefore, has less money on the line if you default.
You could also consider bringing in a co-signer on your mortgage loan. A co-signer agrees to share the responsibility of the loan with you. If you fail to make payments, they‘ll need to step in and do so on your behalf. (If you go this route, just make sure to choose a co-signer with good credit. This will make qualifying easier and potentially get you a lower interest rate.)
Build your credit
Finally, consider building up your credit before applying for a mortgage. You can do this by getting a secured credit card (a deposit-based card that allows you to build up your credit over time) or a credit-builder loan. This small loan is designed to be repaid over a few months or years, with each payment reported to credit bureaus to help gradually increase your credit score.
Getting a retail credit card, such as a gas station card or a department store card, can also be beneficial. Just make sure to keep your spending low and that you pay off the balance quickly and on time. Any late payments will ultimately harm your credit.
Types of mortgages for first-time buyers with no credit
It’s easier to get a mortgage if you have a rich credit history and a good credit score. But if you don’t have these, you still have options with most major loan programs.
Without credit, you can typically qualify for four popular loan programs under the following circumstances:
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FHA loans: With FHA loans, you don’t necessarily need a traditional credit score to qualify. You can use things like rental housing payments, phone bills, utility bills, and other alternative forms of credit to show that you’re responsible with your money.
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Conventional loans: Conventional loans allow for a “nontraditional credit history,” too, which can include past housing payments, bills, bank statements, and more.
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VA loans: VA loans have no hard credit score requirements, so getting one of these loans is also an option, as long as you’re a veteran or military member with the appropriate service record.
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USDA loans: Rent or childcare payments, insurance and utility bills, tuition, and proof of other recurring charges can be used as non-traditional proof of good credit habits for USDA loans. Please note that you’ll need to meet the income requirements for these loans and be purchasing a home in an eligible rural area.
As mentioned earlier, non-QM loans are another option to explore. However, these options aren’t as widely available as the ones mentioned above. Consult with a mortgage broker or professional if you require assistance in finding a loan program that aligns with your credit profile.
Buying a house with no credit: FAQs
How can I buy a house with no credit?
To buy a house with no credit, you’ll need to be careful about choosing the right mortgage lender and loan program, as some make the process easier than others. Choosing a loan with a manual underwriting option can often help, as can a non-QM loan. You can also work on building your credit up before applying for a loan, offer a larger down payment, or bring in a co-signer to help.
What options are there for home loans for a first-time home buyer with no credit?
FHA loans can be a good option for a first-time home buyer with no credit, as they allow you to use non-traditional sources to prove your ability to pay. For example, you might use copies of past rent checks or proof of your monthly car payments from the last two years to qualify. Non-QM loans, which don’t adhere to the same credit and financial standards as conventional loans, are also an option.
Is it possible to buy a house without a credit score?
Yes, buying a house without a credit score is possible, though it can be more challenging. If you have no credit and want to buy a home, you’ll need to shop around for your lender, choose the right loan program, and consider making a larger down payment or bringing in a co-signer to offset the risk your lack of credit poses.
What is the lowest credit score to buy a house?
FHA loans technically allow for credit scores down to 500 as long as you make at least a 10% down payment. However, these are just the minimums the FHA sets, and lenders can set standards higher than this if they want to.
How hard is it to get a house loan with no credit?
Not having a credit score can be a major factor in home loan applications. Certain lenders and loan programs cater to no-credit borrowers, though, and providing financial proof that you can handle your mortgage payments can help your case.
Laura Grace Tarpley edited this article.
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