Can you buy a house with no credit?
Quick insights
- Buying a house without credit is possible, but it often requires alternative methods like cash offers, Federal Housing Administration (FHA) loans with nontraditional credit or manual underwriting.
- Lenders assess credit to gauge financial reliability, so having no credit can make securing a mortgage more challenging. But it's generally easier to get a mortgage with no credit than with bad credit.
- Building credit ahead of time can simplify the process. Strategies like opening a credit card, paying your bills on time and keeping your credit utilization low can help you build 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.
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.
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 to make 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.
Before we get too far into the weeds about how to get a home loan with no credit, let’s break down why credit matters so much in the first place.
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.
Generally, lenders look for credit scores in certain ranges for the following types of home loans:
- Conventional mortgage: 620 or higher
- FHA loan: 500 if you can put down 10%, or 580 with 3.5% down.
- VA loan: No minimum credit score, but most lenders who offer VA loans look for a 620 or higher
- Jumbo loan: 700 or higher
- USDA loan: 620 or higher
These ranges are approximate and can vary depending on your lender and other factors, like your debt-to-income ratio and the size of your down payment. Talk to your lender for more specific details about different mortgage types.
The difference between bad credit and no credit
A common misconception among new homebuyers is that no credit is the same thing as bad credit. The two are quite different.
If you have no credit, that means you have no credit history. Perhaps you’ve never taken out a car loan, a student loan or a credit card. Your credit simply does not exist. The reasons for a lack of credit can also include:
- Lack of experience: This is very common for young adults who are just entering the working world and don’t yet have any credit cards or loans in their names.
- No recent credit use: At the other end of the spectrum, retirees or others who have paid off all their other debts may not have a credit score, since their credit has been inactive for so long.
- Recent immigration: If you’re new to the United States, you will likely not have a credit score because you don’t have a credit history at one of the three American credit bureaus. Credit scores are not transferred between countries.
However, if you have bad credit, you have a credit record but may have made a few mistakes along the way. You may have over-utilized your credit cards, missed a few payments or simply taken out too many lines of credit at once.
If you have no credit, lenders aren’t necessarily saying you’re a bad candidate for a loan; simply that they don’t have enough information to go by. Having bad credit raises other red flags and portrays you as a risk in their eyes, too, just in a different way.
When it comes to getting a mortgage, both poor credit and no credit can be problematic. But it’s generally viewed as easier to get a mortgage with no credit history than with bad credit. That’s especially true if the other parts of your mortgage application are in good shape.
How to buy a home with no credit
Let’s take a closer look at each of these options for learning 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.
Choose an 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.
Make a larger down payment
In some cases, making a larger down payment can boost your odds of qualifying for a home loan with no credit history. A larger down payment reduces the amount you need to borrow and lowers the risk for lenders.
How much do you have to put down on a house with no credit?
There is no set amount for a down payment if you have no credit. Many buyers who do have a credit history aim for a 3% down payment. If you have zero credit to fall back on, however, you should strive to put at least 20% down on your new home.
Go through 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. They can also consider non-traditional sources of credit, like your utility payment history, to assess your ability to afford the home and repay the loan. Essentially, they can use other aspects of your finances to measure your creditworthiness. This is done by an actual person rather than an automated process, which is the case with traditional underwriting.
To go through manual underwriting, you may be expected to furnish the following documents:
- Proof of a year’s worth of on-time rent and utility payments
- Internet or cell phone bills
- Records from your auto insurance payments
- Bank statements (sometimes as far back as two years)
- W2s or 1099s for the past two years
- Pay stubs
- Employment verification letter
- Income tax returns
- Identification, like a driver’s license
Other ways to get a house without credit
The options above are the most common ways to get a home loan with no credit. But you can follow a few other less conventional pathways as well.
Get a co-signer
A co-signer is a person who agrees to sign your loan application and assume responsibility for the mortgage if you fail to make payments. This is a significant responsibility, which may make it challenging to find a co-signer. However, finding one can help you qualify for a home loan with no credit in certain cases.
Consider seller financing
In some cases, it might make sense to pursue seller financing, where the seller finances the purchase themselves. Often, the terms of these loans are negotiable and can allow you to bypass traditional lending requirements that might require you to have a credit score.
Choose an alternative loan
Another option is to research no credit score home loans from nontraditional lenders. These are typically offered by small or online banks and credit unions. Nontraditional lenders sometimes have more lenient standards for home loans than larger banks have for more conventional loans. Shop around to get a good idea of all of your options.
Tips for building credit
If you’re not quite ready to buy a home but want to start building your credit for when you are, you can take several steps now to prepare.
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.
- Become an authorized user: If you don't want to take out your own credit card, you can become an authorized user on someone else’s (usually a family member or friend) credit card. This will allow you to use the primary account holder’s credit to build your own.
- 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 different types of credit, like credit cards, auto loans and student loans, to name a few, may have a positive impact on your credit score. But that depends on you showing that you’re able to manage these various accounts responsibly.
In summary
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 now to help make the homebuying process go a little more smoothly.
