How to Buy a House With No Credit

Buying a house is challenging, as it requires a steep financial commitment and the load of paperwork that comes with getting approved for a mortgage. Getting a mortgage with no credit only makes the home buying journey more difficult. 

With no credit history to evaluate you by, mortgage lenders will have limited resources to judge your ability to repay. Mortgage loans typically run into the six figures and present a considerable risk to lenders, especially if they are lending to a person who has no borrowing history.

But some mortgage options are still available to you with a limited credit history. Buying a house with no credit will usually require a first-time home buyer program or a no-credit home loan from a mortgage lender that performs manual underwriting. This guide will review your options.

In this guide:

• Can you buy a house with no credit?
• How to buy a house with no credit
• Where to find no-credit mortgage lenders

Can you buy a house with no credit?

Buying a house with no credit is possible, but the home buying journey will be more difficult. When you apply for a mortgage, your credit score (often, your FICO score), and your credit report are key factors home loan lenders will use to approve or deny you.

If you are approved, your credit score will also have a significant impact on the terms you receive. Mortgage lenders place so much emphasis on your credit score because that three-digit number encapsulates your history as a borrower.

A good-to-excellent credit score indicates on-time payments, whether for credit cards, student loans, or personal loans. A poor credit score means you’ve had a difficult time making debt payments. 

Without a credit history, a lender cannot be sure you will make timely monthly mortgage payments, yet it cannot pass you off as an irresponsible borrower, either.  

How to buy a house with no credit

With a limited or non-existent credit history, you will need to know the no-credit mortgage lenders that will consider your application, in addition to how to convince these institutions you are a responsible borrower.

Four ways you can improve your chances of getting a mortgage with no credit are: 

• Start building or improving your credit now.
• Save for a larger down payment.
• Consider first-time home buyer programs.
• Find mortgage lenders that perform manual underwriting.

Start building your credit now

The first strategy to improve your chances of getting approved for a mortgage is to build your credit as soon as possible. The easiest way to do this is to open a credit card account, use that credit card for some small purchases each month, and pay off your balance in full before it’s due.

>> Read more: How to Build Credit With a Credit Card

Building your credit score is not something that will occur overnight, so stay patient and stick with the process of building a positive payment history. The resulting credit score will be worth it.

If you want to get a mortgage very soon, this method will not offer immediate assistance, but it’s still worth doing to improve your financial status overall.

Save for a larger down payment

One of the best ways to alleviate a mortgage lender’s concerns over your credit is to make a large down payment on your home. A lender won’t have to provide as large a mortgage to cover the purchase of the house, thus mitigating its risk. 

Typically, a mortgage lender will want to see a down payment of around 20% of the home’s total purchase price. Anything at or above this percentage should greatly increase your chances of getting approved for a mortgage with no credit. 

Consider first-time home buyer programs

If you are a first-time home buyer or if your family is considered low- to moderate-income in your region, a first-time home buyer program may help you qualify for a mortgage.

Consider these federal first-time home buyer programs:

• FHA loans: An FHA loan is a mortgage insured by the U.S. Federal Housing Administration (FHA). Depending on your lender, it requires a low credit score of at least 500 with a down payment of 10%. If you have a credit score of 580 or above, you can likely make a down payment as low as 3.5%. 
• USDA loans: If you will purchase real estate in rural parts of the country you may be eligible for a no-down-payment USDA loan under this program of the U.S. Department of Agriculture. 
• VA loans: If you are a veteran, military servicemember, or surviving spouse, look into VA loans insured by the U.S. Department of Veterans Affairs. Most VA lenders will not require a down payment or high credit score. 

Note that first-time home buyer programs often come with additional fees and mortgage insurance requirements that will add to your total cost compared with conventional loans. Further, a low or no-down-payment mortgage may tempt you to take on more mortgage debt than you need. 

Find mortgage lenders that perform manual underwriting

To be approved for a conventional mortgage with no credit, you could benefit from going through a lender that performs manual underwriting. 

Rather than the typical automated process, during a manual underwriting process, a person or group of people will use an alternative credit checking method that analyzes non-traditional criteria to determine your creditworthiness, including:

• Income or pay-stubs.
• Future earning potential.
• Bank statements.
• Previous rent payments.
• College degree.
• Payments for utility bills.

Lenders most often use manual underwriting when trying to vet borrowers who don’t have a traditional credit history to evaluate, including recent immigrants and young graduates.

Before applying with a lender that uses manual underwriting for mortgages, find out the criteria it uses and documentation it needs so you can prepare for the process. Additionally, make sure any outstanding credit card debts, utility bills, and other financial obligations are paid off. 

Where to find no-credit mortgage lenders

When in the market for a no-credit mortgage, you will likely have the most success applying for home loans with local financial institutions or online lenders instead of large national lenders. The latter tends to rely on traditional loan approval practices. 

Small local banks or credit unions may provide your best chance at getting a mortgage with no credit, because these institutions are more willing to use non-conventional underwriting methods. 

A credit union is a nonprofit, member-owned financial cooperative that provides banking services to members. Because members pool their money in a credit union, you are more likely to be approved for a mortgage and likely at a competitive interest rate. 

While evaluating your local mortgage options may be a good move, you should also apply for pre-approval from online lenders to compare your options. Below, we have listed a few mortgage lenders that offer either manual underwriting highly rated FHA loans.

3 mortgage lenders for home loans with no credit

• New American Funding
• Reali
• Better

New American Funding

New American Funding is one of our top-rated FHA lenders and uses manual underwriting, including criteria such as debt-to-income ratio, pay stubs, and tax returns. This is also a great lender for first-time home buyers. 

• LendEDU rating: 4.74 / 5.00
• BBB rating: A+
• States available: 48
• FHA loan terms: 15 or 30 years
• FHA loan minimum down payment: 3.5%
• Full review: New American Funding Mortgage Review

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Reali

Reali offers both manual underwriting and FHA loans. The company’s manual underwriting process will look at things like your tax returns, pay stubs, and bank account information. 

• LendEDU rating: 4.52 / 5.00
• BBB rating: A+
• States available: 12
• Loan terms: 15 or 30 years
• Minimum down payment: Not disclosed
• Full review: Reali Loans Mortgage Review

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Better

While Better does not perform manual underwriting, LendEDU rated it as one of the best FHA lenders and best online mortgage lenders. The company uses a simplified loan application process that makes it easy to understand how much you will pay. 

• LendEDU rating: 5.00 / 5.00
• BBB rating: A+
• States available: 36
• Loan terms: 15, 20, or 30 years
• Minimum down payment: 5%
• Full review: Better Mortgage Review

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How we rate mortgage lenders

LendEDU ranks mortgage lenders based on the weighted average of 12 data points, including:

>> Read more: How to Buy a House With Bad Credit