Can you buy a house with no credit? Tips and loan options for those with no credit score

If you want to buy a home but your credit score is lower than you’d like, there are still ways to get a mortgage. While having a good credit score is important when getting approved for a mortgage, a low score doesn’t mean you can’t become a homeowner. Let’s explore what options are available to home buyers with no credit history.

Do you need credit to buy a house?

Let’s start with the easy answer. No, you don’t need credit to buy a house. Having an established credit history and a good credit score improve your chances of qualifying for a mortgage. Still, you can buy a house with no credit.

While the exact credit score typically needed to buy a house depends on your lender, here are some ballpark numbers for different types of home loans:

• Conventional mortgage. You need a credit score of 620 or better.
• FHA loan. With 3.5% down, you need a score of 580 or better. This is the minimum score requirement at Rocket Mortgage^®. Other lenders may allow a score of 500 with a 10% down payment.
• VA loan. The VA doesn’t set a minimum credit score, but most lenders require a score of 620, while some lenders may go as low as 500. Rocket Mortgage requires 580 or better.
• Jumbo loan. With a 10% down payment, most lenders require a credit score of 700 or higher.
• USDA loan. Private lenders issuing USDA mortgages typically require a credit score of 580 or higher.

Having a well-established credit history increases your chances of better loan terms and a lower interest rate. But what happens to home buyers with no credit or bad credit?

No credit vs. bad credit

There’s an important distinction between having no credit and having bad credit. If a home buyer has no credit, they have no credit record or history. If a home buyer has bad credit, they have a credit record, but it’s likely tarnished by mistakes. If you have no credit, lenders have no way to predict or measure the likelihood that you’ll abide by your loan terms. Even if you have a steady income, lenders will see your lack of credit as a risk because you have no track record of paying back debt.

A lower credit score often is defined as a score below 600 on a 300 – 850 scale. If your credit score falls into this category, lenders may be reluctant to extend credit. Because a credit score below 600 can raise red flags for lenders, it may be easier for a home buyer to qualify for a mortgage with no credit history rather than a poor credit history.

How to buy a house with no credit history

People without credit history can get a house if they are willing to go through a few extra steps. Here’s what the process may look like for you.

Step 1: Choose manual underwriting

Underwriting is the process of verifying your income, employment, debt, and financial history to decide whether you qualify for a home loan. Traditional underwriting uses an automated process, while manual underwriting is done by hand. Manual underwriting is ideal for home buyers with no credit because it allows lenders to verify payment history in other ways. You can request proof of on-time payments from your landlord, insurance company, utility companies, and more to confirm that you pay your bills every month.

Documents you may need to provide for manual underwriting include:

• Proof of 12 months of on-time rent payments
• Utility bills showing consistent, on-time payments
• Cell phone or internet bills
• Auto insurance payment records
• Bank statements from the past 12–24 months
• Pay stubs or proof of consistent income
• W-2s or 1099s from the past two years
• Income tax returns from the past two years
• An employment verification letter or contact information for your employer
• Personal identification, such as a driver’s license or passport

These documents help lenders assess your financial responsibility, even if you don’t have a traditional credit report.

Step 2: Make a large down payment

A large down payment might increase your chances of qualifying for a home loan without a credit history. Typically, buyers make a down payment of at least 3%. However, the more money you put down, the less you need to borrow to buy the home. If your lender can verify that you can afford the monthly payment, you can qualify for a mortgage with no established credit history.

Step 3: Find a co-signer

A co-signer is someone who agrees to sign your loan documents with you and assume responsibility for the loan if you fail to make payments. Using a co-signer can be helpful for buyers with no credit, but co-signing a mortgage is a huge responsibility. For someone to qualify as a mortgage co-signer, they need good credit and a positive credit history.

Step 4: Explore nontraditional lenders

Nontraditional lenders like small or online banks and credit unions often have more lenient lending standards than big banks. As a result, these types of lenders may be more likely to approve mortgages for home buyers with no established credit. Shop around for lenders to see their requirements, and connect with a loan officer to see if you can work something out.

Mortgage options for first-time home buyers with no credit

Now that you know there are ways to buy a house with no credit, let’s look at the mortgage options for first-time home buyers with no credit.

Conventional loans

A conventional loan is a mortgage issued by a private lender and not backed by a government agency. Conventional loans that conform to specific federal guidelines – primarily a maximum loan amount – can be sold to Fannie Mae or Freddie Mac. The following requirements must be met by borrowers with no established credit to qualify for a conforming conventional mortgage:

• Debt-to-income ratio. Without a credit score, borrowers must have a DTI ratio of no more than 36%.
• Down payment. With no credit history, borrowers need a down payment of at least 10%. This number is significantly higher than the 3% required for specific credit scores.
• Cash reserves. Borrowers must have 12 months’ worth of mortgage payments in the bank when they close on their home.
• Private mortgage insurance. Without a credit score, the PMI cost for your conventional loan will be equal to what it would be if you had the lowest allowable credit score.

Federal Housing Administration loans

An FHA loan helps people buy a home with a lower credit score. This program targets first-time home buyers, but the FHA allows lenders to consider borrowers with no established credit by finding other ways to verify an applicant’s on-time payment history.

To qualify for an FHA loan, you’ll need:

• A 3.5% down payment and a credit score of at least 580.
• Some lenders allow a credit score of at least 500 with a 10% down payment.
• A DTI ratio of 43% or less 

Veterans Affairs loans

A VA loan is available only to active-duty military personnel, veterans, and their eligible surviving spouses. No minimum credit score is required to qualify for a VA loan, but lenders are free to set their own requirements.

U.S. Department of Agriculture loans

A USDA loan is available only to low- to moderate-income earners buying a home in a qualifying rural area. Lenders typically require a credit score of at least 640; however, using the manual underwriting process, buyers with no credit score may still qualify for a USDA loan if they can provide at least 12 months of payment history.

Ways to build credit to qualify for a mortgage

Building credit can improve your mortgage options and help you qualify for better rates. To build or repair your credit, consider the following:

• Become an authorized user on someone’s credit card. One of the easiest ways to build credit is by becoming an authorized user on a family member’s or friend’s credit card. As an authorized user, you can use the primary account holder’s credit to establish your own credit history with zero liability and low risk.
• Open a credit builder card. Credit builder cards are designed for people with no credit history or a low credit score. They have low credit limits and a high annual percentage rate. These features help lenders reduce the risk of losing money if the cardholder fails to make payments.
• Apply for a credit card with a co-signer. Co-signing allows two people to share one credit card account, allowing both individuals to share one credit history. Unlike authorized users who don’t make credit card payments, co-signers share equal responsibility for the credit card and its payments. As a result, co-signing can be riskier than becoming an authorized user.

The bottom line: Buying a house with no credit is possible

Your credit score isn’t the only factor that lenders consider when you apply for a mortgage. They also weigh your employment history, income, and savings. There may be compromises, such as a higher interest rate. As you improve your credit score, you may be able to refinance with better terms in the future. Once you’ve chosen a lender, you can discuss your options with them. There are ways to purchase a house with no credit history.

Take the first step toward homeownership and apply for a mortgage online to learn about your loan options.