Can you buy a house with no credit?
If you’re thinking about buying a home, you might be wondering how your credit — or lack thereof — might impact your chances. Lenders often look at credit scores to assess a borrower’s ability to repay loans and manage their finances. So, for those without a credit history, it may seem like getting a mortgage and securing your forever home is forever out of reach. But can you buy a house with no credit? Let’s explore whether buying a home with no credit is possible, plus a few credit-building tips to help you take your first steps toward homeownership.
What is credit?
In a nutshell, credit is your ability to borrow money on the condition that you’ll pay it back, typically with interest. Your credit score is intended to reflect how responsible you’ve been with money in the past, taking into account elements of your financial history, current debts and how reliable you’ve historically been at repaying what you borrow.
Why do you need credit for a mortgage?
When you apply for a home loan, lenders want to know that you’re a reliable borrower who will make their payments on time. A good credit score is seen as a signal that you’ve managed your finances well. For a first-time homebuyer with no credit history, this can make things a bit more challenging, as lenders may be unsure about approving a mortgage without any proof of your creditworthiness.
Can you buy a house without credit?
The short answer is yes, you can buy a house without credit — but it’s a little less straightforward than purchasing a home with an established credit history. One option is making a cash offer, though this requires significant cash reserves that most people may not have access to. There are, however, other alternatives such as securing a FHA loan using “nontraditional credit” or going through manual underwriting. Let’s take a closer look at each of these options for learning how to buy a home with no credit.
How to buy a home with no credit
- Pay in cash: Although it’s rare, you can forgo a mortgage or credit history if you have the financial means to pay for a home outright.
- FHA loan: Under the FHA’s “non-traditional credit history clause,” lenders can consider other forms of payment history instead of traditional credit. This may include rent, utility bills and insurance payments, among others.
- Manual underwriting: This process involves a more in-depth review of your financial situation by a mortgage underwriter. They will look at factors such as your employment history, income and bank statements, and non-traditional sources of credit such as utility payment history to assess your ability to repay the loan — essentially, using other aspects of your finances to measure your creditworthiness.
Tips for building credit
If you’re not quite ready to buy a home but want to start building your credit for when the time comes, there are several steps you can begin to take. By establishing a strong credit history, you may increase your chances of qualifying for a mortgage to purchase a home without having to worry about buying a home with no credit. Here are a few strategies you might consider:
- Opening a credit card: If you don’t already have one, applying for a credit card and using it responsibly can help by establishing a history of on-time payments. Note that opening a new credit account can trigger a hard credit inquiry that could lower your score in the short-term.
- Paying bills on time: Consistently paying your bills on time is crucial for establishing a positive credit history. Setting up automatic payments and reminders could help reduce the likelihood of missing a due date.
- Monitoring your credit: Regularly checking your credit report can help you spot any errors or discrepancies that could negatively impact your credit score.
- Keeping credit utilization low: Your credit utilization ratio is the percentage of your available credit that you’re using; a common strategy is to keep your utilization below 30%.
- Diversifying your credit: Having a mix of different types of credit, such as credit cards, auto loans and student loans to name a few, may have a positive impact on your credit score — provided you’re able to manage these various accounts responsibly.
Can you buy a house without credit? Yes, it’s possible to buy a house without credit. Even for those without an established credit history, there are options available. Alternative methods like cash offers, FHA loans with nontraditional credit or manual underwriting may be worthwhile strategies for buying a home with no credit. Alternatively, if you have the time, it may be wise to start building credit ahead of time to help make the homebuying process go a little more smoothly.