Considering that a credit score is traditionally one of the most important factors lenders look at when approving a mortgage application, you may expect it to be impossible to buy a home with no credit. In reality, it's definitely going to be more difficult to buy a home with no credit than it would be if you had an established credit history, but that doesn't mean it's impossible. Here are a few tips for buying a home with no credit history:
Consider Waiting Until You Establish Credit
If you can put off buying a home for a year or so, it may make sense to dedicate that time to establishing a new credit history. You can apply for a personal loan, credit card, or even a store credit account. Then simply only charge a small percentage of the credit limit each month and aim to pay it in full each time your bill posts. This will help you quickly develop a credit history and demonstrates to lenders that you do not live beyond your means.
Look into an FHA Loan
An FHA loan is a mortgage that is insured by the federal government's Federal Housing Administration. These loans are desirable because they do not require the high credit score or established credit history that other types of mortgage loans require.
In addition, the required down payment is much lower, though without any credit history you may need to put down a larger amount of money to make your application more balanced. You will still need to meet other requirements, such as an income that correlates with being able to easily pay your mortgage each month.
Try a Smaller Lender
In some cases, a smaller lender, such as a local bank or credit union rather than one of the big chains, is more likely to approve a loan application from a customer with limited or non-existent credit. These smaller banks and credit unions often offer more personalized service, meaning they may take the time to look at your overall financial health in detail instead of just relying on a credit score. Your odds may be even better if you are a current customer.
Without established credit, you may have to spend more time and money in order to buy a home, but it's certainly not hopeless. Following these tips will help improve your case when applying for loans and looking at homes.