No credit history?? Still you can buy a house.

Most of us assume that a good credit score is necessary to get a mortgage and buy a house.

And most of the time the first-time home buyers either challenged by poor credit score or no credit history at all often grapple with this dilemma, if at all they will be eligible for a mortgage loan.

Fortunately, having no credit history doesn’t prevent you from becoming a homeowner.

Good news for them is that there are loan programs existing that can accommodate buyers with no credit score, as long as they can handle the upfront costs and monthly mortgage

Can you buy a house with no credit?

It is typically challenging and does require extra effort, but this is no dream, it’s a possibility. Plus, you’ll typically pay higher rates for a mortgage loan.

The likelihood of being approved for a mortgage increases with a solid credit history and good score. However, there are loan options available if you want to buy a house with no credit.

Bad credit score vs no credit history

Poor credit score and having no credit score are very different. It may be better or worse, depending on the reason for your low score.

Lenders typically want to see a clean credit history. That shows your financial stability and repayment capability. Clean credit history typically points out at no bankruptcy, foreclosure, multiple late payments, or other negative credit information in recent years.

If your credit scoreboard shows how badly you have had managed debts in the past, a lender will be much less likely to approve you for a mortgage.

But sometimes credit scores drop for reasons outside our control. The death of a spouse or primary wage earner, divorce, large medical debts, and other unexpected events can take a big toll on someone’s finances.

If you have a strong reason for having low score which was genuinely outside your control, and you’ve been actively working to build a strong credit history, lenders are going to peruse at your mortgage application with an eye to work it out.

However, if you’re starting from scratch with no credit, don’t lose heart. There are pathways to homeownership tailored just for you.

Find mortgage lenders that offer manual underwriting

All you need to do is find lenders who offer manual underwriting as for first-time homebuyers with no credit history, manual underwriting could be crucial. Unlike traditional underwriting, which is based on algorithms and credit ratings, manual underwriting involves a human underwriter or loan officer reviewing your personal finances .

This method gives mortgage lenders a more detailed and complete picture of your financial situation and borrowing capability by taking into account a greater number of variables, including your bill payment history, savings account health, and income stability which might not have made you qualify for a credit history.

Gather comprehensive financial documentation

To navigate manual underwriting successfully, it’s essential to come prepared with detailed documentation of your financial history.

  • Proof of on-time payments: Gather evidence of regular, timely payments for rent, utilities, insurance payments, and any other recurring bills. This documentation serves as an alternative to your credit history by being the  proof of your financial reliability.
  • Income and employment verification: Present proof of stable income and employment. This can include pay stubs, tax returns, and employer letters that demonstrate your ability to support ongoing mortgage payments.
  • Bank statements and savings: Showing your savings account statements gives lenders insight into your financial health beyond income, including your ability to save and manage money effectively.
  • Debt-to-income ratio: Lenders evaluate your debt-to-income ratio (DTI) by comparing your monthly debt payments to your monthly gross income. A lower DTI ratio signals your creditworthiness to lenders. So prioritize paying debts—especially student loans and auto loans—on time and in full, as this could make or break your mortgage application.
  • Organised Paper work: The more organised & up-to-date are your financial documents

Explore for the right mortgage lenders

Lenders who offer manual underwriting: Finding lenders that offer manual underwriting might require some research. Look for lenders who advertise their willingness to work with first-time home buyers or those without a credit history. There are lenders who are eager to accommodate potential buyers with solid financial foundations, even in the absence of credit scores.Credit unions and local banks, in particular, may be more flexible and open to manual underwriting.

Non-traditional Mortgage Lender: Consider lenders who specialize in working with first-time home buyers or those with no credit history. These institutions often use alternative methods to evaluate your creditworthiness, such as your rental payment history, utility bill payments, and employment status.Similar to manual underwriters, they’re more willing to take a holistic view of your financial health beyond just a credit score.

FHA Loans : FHA loans are known for their more lenient lending criteria, including lower down payment requirements and minimum credit scores.While they do require some form of credit history, lenders are permitted to consider non-traditional records, making this an attractive option for those without a conventional credit report.

Leverage a larger down payment: If you have substantial savings then consider a larger down payment, as this can sometimes offset the absence of a credit history. It reduces the lender’s risk and demonstrates your financial commitment to the property. This doesn’t just increase your chances of getting approved for a mortgage; it can also result in more favorable loan terms.

“Thanks for reading this article and for a hassle-free experience of purchase/sale of a home feel free to get in touch”.