7 Steps to Buy a House With No Credit Score: A Comprehensive Guide

A person holding the keys to a house, representing the possibility of homeownership — Image by macrovector on Freepik

Are you dreaming of homeownership but worried about your lack of credit? Don’t let your absence of credit history discourage you. With the power of knowledge and determination, it’s possible to buy a house with no credit score. While a good credit score is typically important for mortgage approval, there are options available for home buyers who are looking to make their dreams a reality without relying on credit. In this article, we’ll explore the possibilities and guide you through the process of achieving your goal to buy a house with no credit score.

Do You Need Credit To Buy A House?

Let’s address this question upfront: No, you don’t need credit to buy a house. Although having an established credit history and a good credit score can improve your chances of qualifying for a mortgage, there are loan options available for those with no credit.

No Credit Vs. Bad Credit

It’s important to differentiate between having no credit and having bad credit. If you have no credit, it means you have no credit record or history. On the other hand, if you have bad credit, your credit record is likely tarnished due to past mistakes.

How To Buy A House With No Credit Score Or History

Now that we’ve established that it’s possible to purchase a house with no credit history, let’s explore the steps involved in buying a house with no credit.

1. Go Through Manual Underwriting

Manual underwriting involves a manual assessment of income, employment, debt, and financial history. This process is ideal for home buyers with no credit because it allows lenders to verify payment history through alternative means.

2. Make A Large Down Payment

Making a substantial down payment can significantly improve your chances of qualifying for a home loan. By putting down a larger amount, you reduce the total value of the home you need to borrow. If your lender can verify that you can comfortably afford the monthly payments, you may qualify for a mortgage even without an established credit history.

3. Find A Co-Signer

Having a co-signer can be beneficial for buyers with no credit. A co-signer is someone who agrees to sign the loan documents with you and assumes responsibility for the loan if you fail to make payments. To qualify as a mortgage co-signer, an individual needs a good credit score and a positive credit history.

4. Explore Nontraditional Lenders Nontraditional

lenders such as small banks, online banks, and credit unions often have more flexible lending standards compared to larger banks. These lenders may be more inclined to approve mortgages for home buyers with no established credit history. It’s recommended to shop around for lenders, understand their requirements, and connect with a loan officer to explore potential options.

Mortgage Options For First-Time Home Buyers With No Credit

Now that you know buying a house with no credit is possible, let’s delve into the mortgage options available for first-time home buyers without a credit score.

1. Conventional Loans

A conventional loan refers to a “conforming” mortgage loan that meets the requirements of Fannie Mae or Freddie Mac. To qualify for a conventional mortgage loan with no established credit, borrowers must meet specific criteria.

2. FHA Loans

An FHA loan is a mortgage backed by the Federal Housing Administration, designed to assist individuals in purchasing a home when they might not qualify for conventional financing. The FHA allows lenders to consider applicants with no established credit by utilizing alternative methods to verify their payment history.

3. VA Loans

A VA loan is a mortgage backed by the Department of Veterans Affairs, specifically designed for military veterans who meet certain service length requirements. While the VA does not impose a minimum credit score requirement, individual lenders may have their own criteria.

4. USDA Loans

A USDA loan is a mortgage backed by the U.S. Department of Agriculture, available to low-to-moderate-income earners in qualifying rural areas. Buyers with no credit score may qualify through manual underwriting by providing an alternative payment history for at least 12 months.

Ways To Build Credit To Qualify For A Mortgage

Although it’s possible to purchase a house with no credit history, building credit can expand your mortgage loan options and potentially qualify you for better rates. Here are some suggestions for building or repairing your credit to enhance your mortgage eligibility.

Become an Authorized User Become an authorized user on someone’s credit card to establish your own credit history.
Open a Credit Builder Card Open a credit builder card designed for individuals with no credit history or a low credit score.
Apply for a Secured Credit Card Apply for a secured credit card with a co-signer to share the credit history and responsibility.

The Bottom Line On Buying A House With No Credit

While it’s essential to work on building your credit history, don’t let your lack of credit hinder your dreams of homeownership. Purchasing a house with no credit is possible, and there are various options and strategies to explore. Take the first step towards homeownership by applying for a mortgage online and discovering the loan options available to you.