Can I Buy a Home With No Credit Score?
In the United States, there’s a big stigma around credit scores. We’re constantly barraged with messages from financial institutions, money blogs, and other so-called experts that credit is the be-all-end-all of financial success. If you don’t have a high credit score or if you don’t have any credit at all, it’s easy to feel like you’re limited by this situation.
In reality, you have more options than you think regardless of your credit status when it comes to buying a house. In fact, there are many federal protections and situations in place specifically to help these types of buyers with this process.
Home buying shouldn’t just be for those who have spent a lifetime saving and building credit. It’s a step anyone should feel empowered to take as long as they’re in a secure, stable financial position and have given thought to their long-term goals. Here’s everything you need to know about buying a home with no credit score.
Reasons You Might Not Have Credit
There are two different situations that generally create a problem when you try to buy a house. The first is that you might have low credit. This could result from a poor payment history, only having a few credit accounts, or any unsavory credit practices. Even if you’ve turned your credit around recently, you might still struggle with some of these marks on your credit score.
Another possibility is that you simply have no credit or you’re debt-free. This is most common with young people, but it could truly strike anyone who lives a debt-free or low-debt life. While you might think not having debt is a good thing, it doesn’t work perfectly in our credit-focused world. If you don’t have a car loan, any previous mortgages, and you use debit cards over credit cards, you might find yourself with little to no credit.
However, don’t let this get in the way of your dreams to buy a house. While the best option might be to wait until you’ve built some positive credit to start the home buying process, there are still options to continue this process without credit or even with low credit.
Your first option is to pursue an FHA loan. These are government-backed loans that lower the bar of entry to home buying to those with poor or limited credit. In addition, these loans require only a small downpayment of at least 3.5%.
With an FHA loan, if you’re a first-time homebuyer, you don’t need to show credit history or even an active credit score. You can be approved based on other factors like your employment status, income, and payment history.
However, like all financial decisions, make sure you know what you’re getting into. FHA loans are a great option since they don’t come with the complicated requirements of other mortgages. At the same time, since the qualifications are low, you’ll likely pay more interest and fees in the long-term.
Another option aside from applying for an FHA loan is to use a manual underwriter. Manual underwriting is a way to investigate your ability to repay your debt without the traditional credit process. Many traditional lenders will offer manual underwriting if you’re credit-free, though you’ll need to submit the right documents.
This process isn’t always easy since there are a lot of hoops to jump through. You’ll need formal proof of payment history, employment, and you’ll likely need a larger downpayment. Lenders want you to demonstrate that you handle money responsibly even if you don’t have an extensive credit history.
Buying a Home Without Any Credit
Though it’s not commonly talked about in the financial world, it’s completely possible to buy a home without any credit. Though it sometimes seems like credit is necessary to do just about anything nowadays, this isn’t actually the case.
As long as you’re open to an alternative option like FHA loans or manual underwriting to prove you have the ability to pay responsibly, you’re in a good spot to buy a home with no credit score. You don’t have to be held back by your credit score in this day and age.