Mortgage lenders prefer to see a good credit score and lengthy credit history when you apply for a mortgage. Plenty of people don’t meet those standards, however. Maybe you have no credit at all and are asking yourself: “Can I buy a house with no credit?”
If that’s you, don’t worry. As you pay your bills on time and become able to show a lender a steady payment history, you’ll find plenty of ways to go about buying a house with no credit. Whether it’s through a government-backed loan or manual underwriting, you’ll still have a chance at being approved for a mortgage.
Let’s explore your options for buying a house with no credit. You might just be surprised at what your options are and how many you have.
What Is Credit?
Credit generally refers to how trustworthy you are as a borrower. Anytime someone lends you money (also known as giving credit), it becomes a part of your credit history. Anytime you apply for a loan or credit card, lenders look to your credit history as an indicator of whether you’re likely to pay them back.
Your credit history consists of two primary components:
- Your credit report is a statement of your borrowing history. It’s made up of information that credit bureaus receive from lenders. It contains your personal information, current and past credit accounts, payment history and other public records.
- Your credit score is a three-digit number that represents your creditworthiness. Credit scores can range from 300 – 850, and the higher the number, the better. In general, anything above 700 is considered pretty good.
When you apply for a mortgage, prospective lenders will pull your credit report and view your credit score to decide whether to give you a loan. To declare you loan-eligible, most lenders require that you have a specific credit score or one that’s higher. Lenders check your credit report for any missed payments or delinquent debts that would indicate you can’t be completely trusted with a home loan.
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Do You Need Credit To Buy A House?
Your credit history and credit score will be among the most important factors that lenders consider when deciding if they’ll approve you for a mortgage. Although the minimum credit requirements will vary from one lender to another, you can expect that each lender will need evidence that you can responsibly borrow money. In other words, they’ll want to know you’ve borrowed money before and paid it back on time.
While the exact credit score needed to buy a house will depend on your lender, here are some ballpark numbers:
- Conventional mortgage: 620 or better
- FHA loan with 3.5% down: 580 or better
- FHA loan with 10% down: 500 or better (Some FHA lenders require a minimum 580 credit score regardless of down payment.)
- VA loan: 580 or better
It’s important to know that a well-established credit history can increase your chances of better loan terms and a lower interest rate. However, while lenders prefer to see a credit history and a baseline minimum credit score, first-time home buyers with no credit can still qualify for certain types of home loans.
Next, we’ll deal with some ways that first-time home buyers with no credit history can still accomplish their goal of buying a home.
How To Buy A House With No Credit
You may find yourself in a position of wanting to buy a house but having either a low credit score or none at all. Keep in mind that those are two different situations. A bad credit score generally means your credit score is either poor (300 – 579) or fair (580 – 669). When you have no credit, it means you’ve never borrowed money before and simply don’t have a credit score.
Both of these scenarios can make it challenging to buy a house, but certain workarounds may be available to you. Let’s take a look at a few of them.
Apply For An FHA Loan
An FHA loan is a mortgage backed by the Federal Housing Administration. These loans help people purchase a home when they otherwise might not be able to afford it. The program is often ideal for first-time home buyers, but anyone who meets FHA loan requirements can receive FHA mortgage approval.
One requirement of an FHA loan, at least in most cases, is a debt-to-income ratio of 45% or less. Per FHA loan regulations, however, lenders are allowed to consider candidates with no credit history. This situation falls under the FHA’s category of a nontraditional credit history, and lenders can find other ways to verify your on-time payment history.
In fact, the federal government specifically prohibits lenders from using lack of a credit history as a reason to reject a loan application.
Keep in mind that FHA loans generally require two types of mortgage insurance payments. You’ll have to pay an upfront mortgage insurance premium of 1.75% as well as an annual premium between 0.15% and 0.75% of the outstanding loan balance. The annual premium is broken down into monthly mortgage insurance payments.
Get A Co-signer
A co-signer is someone who agrees to sign your loan documents with you and assume responsibility for the loan. This doesn’t mean the co-signer will be the one making the loan payments, but it means they agree to make the payments if you, the primary borrower, do not.
To qualify as a mortgage co-signer, you’ll need good credit and a strong credit history. Keep in mind that co-signing a mortgage is a major responsibility that carries some significant risks, so you may be hard-pressed to find someone willing to jump on board.
Go Through The Underwriting Process
Underwriting is the process by which your mortgage lender verifies your income and employment, debt and financial history to decide whether to grant you loan approval. Under normal circumstances, underwriting includes pulling your credit history to determine your creditworthiness.
Someone without a credit history may be able to go through what’s known as a manual underwriting process. Manual underwriting takes place when your lender goes through each of your financial documents by hand rather than using an automated computer process.
Manual underwriting is ideal for someone with no credit because it allows your lender to verify your payment history in other ways. You can request proof of on-time payments from your landlord, insurance company, utility companies and others you’ve done business with to show your lender that you pay your bills every month.
Use A Smaller Lender
Nontraditional lenders, such as small or online banks and credit unions, often have more lenient lending standards than big banks. As a result, you may have an easier time getting a mortgage if you have bad credit or no credit at all.
If you already have an account at a small bank or credit union, set up an appointment with a loan officer to see what you can work out. If you don’t have an existing account, shop around for online lenders and check out their requirements. It might take a few tries to find the right lender, so don’t get discouraged.
Make A Large Down Payment
Mortgage lenders may be more inclined to overlook a poor or nonexistent credit history if you’re willing to make a large down payment. You’ll typically need a down payment of at least 20% in this case, but the more money you put down, the more skin you have in the game. If you make a large down payment, your lender might see you as more likely to make your monthly payments so you don’t lose your investment.
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Other Home Loans For First-Time Home Buyers With No Credit
FHA loans aren’t the only viable loan option for first-time home buyers applying with no credit history. Let’s take a look at some other possibilities below.
Conventional Loans
Most mortgage lenders look to Fannie Mae and Freddie Mac when setting their minimum requirements for conventional loans. Fannie Mae and Freddie Mac allow for no-credit home loans as long as borrowers meet these requirements:
- Down payment: With no credit history, borrowers typically need a down payment of at least 10%. This number is significantly higher than the 3% required for certain credit scores.
- Reserve requirements: Borrowers must have 12 months’ worth of mortgage payments in the bank when they close on their home.
- DTI: Without a credit score, borrowers must have a debt-to-income ratio (DTI) of no more than 36%.
- PMI: With a conventional mortgage, the amount of private mortgage insurance you’ll pay usually depends on your credit score. Without a credit score, your PMI will be equal to what it would be if you had the lowest allowable credit score.
VA Loans
A VA loan is backed by the Department of Veterans Affairs and designed specifically for qualified military veterans, active-duty service members, Army Reserve and National Guard members, and surviving spouses. While many lenders require a minimum credit score of 580 for this type of loan, no minimum credit score is technically needed since the VA doesn’t set a minimum score.
The VA does require lenders to review a borrower’s entire loan profile, which includes verifying payment history in ways other than reviewing credit history.
USDA Loans
Backed by the U.S. Department of Agriculture, USDA loans are designed for low-to-moderate-income earners who live in a qualifying rural area.
USDA loan lenders generally require a credit score of at least 640, but borrowers can sometimes find ways around that. Using the manual underwriting process, you can get a USDA loan with no credit score as long as you can provide at least 12 months of payment history in another way.
The Bottom Line: Buying A House With No Credit Is Possible
It’s undoubtedly easier to qualify for a mortgage with a good credit score and a lengthy credit history. But if you don’t check those boxes, don’t give up. There are plenty of ways to buy a house with no credit.
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Victoria Araj
Victoria Araj is a Staff Writer for Rocket Companies who has held roles in mortgage banking, public relations and more in her 15-plus years of experience. She has a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.
