If you have little experience borrowing money, or you’ve simply avoided taking on debt, you can expect a few challenges when applying for a home loan due to not having enough credit history for a mortgage.
While it’s important to understand how lack of credit may limit your loan options, it’s not impossible to get a mortgage as a first-time homebuyer with no credit.
Key Takeaways:
- You can buy a home if you have no credit history, but it likely will be more difficult.
- A borrower with no credit can improve their odds of buying a home by documenting their income and assets, making a larger down payment, considering manual underwriting, and working with smaller or nontraditional lenders.
- Different loan types have different credit requirements, so buyers with no credit may want to expand their mortgage options by considering government-backed loan programs with more-lenient requirements.
Can You Buy a House With No Credit?
In general, you need credit to buy a house. And while it’s possible to buy a home with no credit history, it likely will require some extra work.
What is credit?
Credit is the ability to buy now and pay later. Before lenders extend credit or a loan, they want to be confident that the borrower can repay what they borrow. Lenders vet borrowers by looking at their history of taking on and repaying debts. This information comes from credit reports, which track that information over time.
Credit bureaus use your credit report to calculate your credit score, which is a three-digit number that quickly tells lenders how responsible you’ve been with your credit accounts. Credit scores range from 300 to 850, with lenders using these general ranges to group borrowers:
- Poor: 300-579.
- Fair: 580-669.
- Good: 670-739.
- Very good: 740-799.
- Excellent: 800-850.
If you’ve never had credit or only had credit for a short time, the credit bureaus might not have enough information to calculate an accurate credit score. This is called having a thin file.
How is your credit score calculated?
Though the exact scoring models used to create credit scores vary from company to company, some factors are constant.
FICO credit scores, which are used by most lenders, consider five main types of information and weigh them in the following amounts:
- Payment history (35%).
- Amounts owed (30%).
- Length of credit history (15%).
- New credit (10%).
- Credit mix (10%).
Your payment history is the most important factor in determining your credit score, which is why it’s crucial to pay your bills in full and on time.
How much you owe is the second-most important factor, and is composed of five subfactors:
- How much debt you have. Less is better.
- How your debt is distributed. Having balances on credit cards is viewed differently from having balances on installment loans.
- How many of your accounts have balances. A higher number of credit accounts with balances is perceived as riskier.
- Your credit utilization. This is how much of your available credit you’re using. The less you borrow compared to your credit limit, the better it is for your score.
- How much you still owe on installment loans. Making steady payments on installment loans, like auto loans, indicates that you’re capable of managing your debts.
Does it cost more to get a mortgage with no credit?
Yes, because the better your credit, the lower the interest rate a lender likely will offer you on a mortgage.
For example, while someone with great credit might be offered a 6% interest rate, someone on the cusp of qualifying might have to pay 9% or more for the same loan. On a 30-year loan for $250,000, that’s a difference of more than $500 a month. A difference of just 1 percentage point in the interest rate moves the monthly payment by more than $150.
Having no credit also can lead to lenders charging higher fees or adding other costs to your loan to compensate for complications in the underwriting process.
Buying a home with no credit vs. bad credit vs. good credit
If you’re wondering how to buy a house with bad credit — usually defined as a FICO credit score lower than 580 — you may it difficult to be approved for any mortgage. Bad-credit home loans also tend to come with much higher interest rates.
Buying a home with bad credit is not the same as buying with no credit. Bad credit means you mishandled debt in the past. With no credit or a thin file, it’s tough for lenders to predict how you’ll handle borrowing money because there’s no past behavior to evaluate.
“Credit history is important because it shows the historical trend of a borrower paying or not paying their debts,” says Khari Washington, a broker and founder of 1st United Realty & Mortgage in Riverside, California. “Credit history also shows if someone is utilizing a lot of the revolving credit they have available and if they are likely living beyond their means.”
Getting a Mortgage With Different Credit Types
| No Credit | Bad Credit | Good Credit | |
| Interest Rates | Very high. | High. | Reasonable. |
| Down Payment Requirements | 10% or more. | 3.5% to 10%. | As low as 3%. |
| Borrowing Limits | Lowest. | Moderate. | Highest. |
| Monthly Payments | Highest. | Moderate. | Lowest. |
How To Buy a House With No Credit
If you want to buy a home with no credit, there are a few ways you can improve your odds of getting a mortgage.
Document your income and assets
Lenders care about your credit because they want to know how likely you are to pay back a loan. If you have a history of repaying debts, that’s a good sign. If you have a history of missing payments, lenders expect — fair or not — that trend will continue.
If you have no credit, you’ll have to prove to your lender that you can afford the house payment. Be ready to:
- Show steady employment and income.
- Verify that you make your rent payments.
- Prove you paid your bills.
- Document your savings and any assets you own.
You also will need to show that you have enough saved up to afford a down payment and closing costs on a home. One way to do so is to provide your lender with a proof of funds letter.
Increase your down payment
Lenders are more likely to approve a mortgage for buyers with thin or no credit if they save for a larger down payment. This reduces the amount you need to borrow. It also allows you to start off with more home equity, which helps protect you against owing more on your home than it’s worth if property values drop.
To help increase your down payment, you can look into down payment assistance programs and resources for first-time homebuyers.
Decrease your DTI ratio
Your debt-to-income ratio compares your monthly income with your monthly debt payments. For example, if you have a gross income of $4,000 per month and have $1,600 of debt payments each month, your DTI ratio is 40%. You can use a DTI ratio calculator to figure out where you stand.
The lower your DTI ratio, the more cash you have available for payments on new debts. A rule of thumb is to keep your DTI ratio — including your potential mortgage payment — to 36% or less to show lenders that you can handle the loan payment.
If you have no credit score, you might want to aim for an even lower DTI ratio to make yourself a more attractive borrower. You can do this by increasing your income, reducing your monthly debt load, or doing a combination of both.
Get a government-backed loan
Some government loan programs have more-lenient requirements when it comes to minimum credit scores, so it’s worth checking out these programs to see if you qualify.
The Federal Housing Administration, Veterans Affairs, and the Department of Agriculture offer loan programs designed to help people buy homes. These programs are aimed at specific types of borrowers, such as first-time homebuyers, veterans, and people with lower income buying homes in rural areas.
Consider manual underwriting
Underwriting is the lender’s process of reviewing and verifying your finances. Many lenders automate this process, but if you have a thin credit file or no credit, they can’t rely on the usual documents and data points. They may agree to manual underwriting, which involves having a loan officer review your finances. This allows your lender to bolster a thin file by including rent and utility payments in the evaluation.
Try a smaller lender
If you apply for a no-credit mortgage with a major lender and are denied, you might have better luck with other types of mortgage lenders, such as a credit union. These institutions are more likely to work with individual clients to help them secure financing. Also, credit unions are not-for-profit organizations, meaning they are less concerned about making money and may be more willing to take on riskier loans.
Consider nontraditional lenders
Many banks and credit unions have relatively established processes for originating loans. If you don’t have a credit score, these lenders may be unable or unwilling to adapt their underwriting processes and will refuse to give you a loan.
Some lenders, however, use nontraditional underwriting processes and may be better able to handle assessing your risk as a borrower. Keep in mind that going through this type of manual underwriting may take longer.
Get a co-signer or co-borrower
A co-signer is someone who meets the loan requirements and agrees to pay back your loan if you don’t. Your co-signer’s credit will be negatively affected by late or missed mortgage payments, so it’s important they are comfortable taking that risk for you.
A co-signer is different from a co-borrower, who is someone equally responsible for repaying the loan — often a spouse.
If you can find a co-signer or co-borrower with better credit than yours, it should increase your chances of getting a loan.
Ask for seller financing
Although it’s unusual, you may be able to find a seller who will finance the sale themselves and extend a loan to you directly.
“Only a small portion of homes are financed by the seller,” Washington says. “If you can find it, many sellers will finance with poor or no credit.”
However, some potential trade-offs include larger down payment requirements, inflated mortgage rates, and fewer protections under the law.
Consider hard money loans
Hard money loans are short-term loans offered by nontraditional lenders, such as individual investors. They’re popular with real estate investors and house flippers who don’t plan to keep the home — or the associated loan — for long.
Such lenders rely on the value of the property as collateral, so they might be less concerned with your credit score. However, keep in mind that interest rates and payments may be much higher for these types of loans than for a traditional mortgage. Plus, you’ll have less time to pay the loan off.
Mortgage Options for Borrowers With No Credit
While most loans require borrowers to meet a minimum credit score, there are different types of mortgages that allow borrowers who have lower credit scores or no credit score at all to qualify.
FHA loans
FHA loans have some of the most lenient requirements, making them a good option for many first-time homebuyers and borrowers with no credit. If you have a nontraditional credit history, these lenders can evaluate your ability to repay debt in alternative ways. Apply through a private lender that offers FHA-insured loans.
Conventional loans
Conventional mortgages are the most common type of home loans. There are two types of conventional mortgages: conforming and nonconforming.
A conforming loan means the mortgage adheres to federal standards that allow the lender to sell the loan to Fannie Mae or Freddie Mac. That includes a maximum loan amount, known as the conforming loan limit. For 2024, the conforming loan limit is $766,550 in most of the United States, but can be as much as $1,149,825 in high-cost areas — including Alaska and Hawaii.
Lenders that offer conforming loans are required to create a nontraditional credit profile for borrowers with insufficient credit.
Nonconforming loans are private loans that don’t meet federal standards, and their terms are determined by the lenders who issue them.
Jumbo loans
Jumbo loans are conventional mortgages that exceed the conforming loan limit. Typically, these nonconforming loans are used to buy high-cost houses or homes in an expensive area.
With no federal standards to meet, the interest rates, down payment requirements, and other details on jumbo loans vary from lender to lender. Underwriting requirements usually are stricter.
VA loans
VA loans allow military service members, veterans, and their surviving spouses to buy a home with no down payment. VA loans have no minimum credit score requirement, though the private lenders that issue them may set their own minimums. Visit the VA’s eBenefits website to apply for a loan.
USDA loans
USDA loans are available for low- and moderate-income borrowers who want to buy homes in eligible rural areas. The USDA has no minimum down payment requirement, and the private lenders that issue USDA loans can perform manual underwriting for borrowers with no credit. To apply for a USDA loan, start by looking into the resources available in your state.
Pros and Cons of No-Credit Mortgage Types
Every loan for borrowers with no credit has its pros and cons. Evaluating each program could help you find the right one for you:
Borrowing Requirements by Mortgage Type
| Loan Type | Minimum Down Payment | Minimum Credit Score | Maximum DTI Ratio |
| FHA | 3.5% with a credit score of 580 and above, or 10% with a credit score between 500 and 579. | 500. | 43%, or higher if additional requirements are met. |
| Conventional (conforming) | 3%, or 20% to avoid PMI. | 620. | 36% (or higher if additional requirements are met) for manually underwritten loans; 50% for automatically underwritten loans. |
| Jumbo (nonconforming) | Varies, often 20% or more. | Varies, often 680 or higher. | Varies, usually 45% or less. |
| VA | 0%. | Varies by lender. | 41%, or higher if additional requirements are met. |
| USDA | 0%. | Typically 640. | 41%, or higher if additional requirements are met. |
How To Build Credit
If you want to build credit, there are a few steps you can take.
Pay bills on time
Payment history is the most important factor in determining your credit score, so one of the best ways to build a good credit score is to pay all your bills in full and on time. You can set up automatic payments so that you don’t forget due dates — but make sure you have enough in your checking account to avoid overdraft fees.
Reduce your existing debt
Since your total debt accounts for a solid chunk of your credit score, paying down existing debt is a good way to boost your score.
“To obtain a better score quickly, get your revolving credit card and loan balances below 30% of the credit limit,” Washington says.
Consider getting a secured credit card
Secured credit cards require you to pay a security deposit upfront, making them less risky for lenders. Charging expenses to a secured credit card and then paying off the balance each month will help you develop a positive credit history.
Consider a credit-builder loan
Credit-builder loans work like a savings plan. Instead of getting a sum of money and repaying it, you make a monthly payment until you’ve paid the loan amount and then you get the money. You pay fees and interest, but a credit-builder loan will live up to its name and help you build credit.
Be an authorized user on someone else’s account
Instead of opening your own line of credit, consider asking someone you trust to add your name to one of their credit cards. You don’t need to use the card at all. As the primary cardholder continues to wield credit responsibly, their habits will help establish a positive credit history for you, too. However, if they miss any payments, your credit will suffer as well, so be sure to choose a financially responsible person.
Request a rapid rescore
If you’ve recently improved your credit, Washington suggests getting your lender to perform a rapid rescore instead of waiting for the changes to show up on your credit report.
“A lender can go through your credit and submit paperwork to the credit bureaus on your behalf, fixing any incorrect or outdated information on your credit report,” he says.
Once your new, hopefully higher score is ready, it can be included in your mortgage application.
Find a co-signer
Applying for a loan with a co-signer can help you qualify without having good credit. If you’re approved, you have the opportunity to build credit by making timely payments.
Why You Shouldn’t Try To Build Credit at the Last Minute
Good credit doesn’t happen overnight. Usually, it takes three to six months to establish a credit history — and longer to build excellent credit.
Additionally, every time you apply for credit, the lender will review your credit report. This is recorded on your file as a hard inquiry. Hard inquiries temporarily reduce your credit score by several points, so it’s counterproductive to try to build credit quickly by opening new credit cards right before applying for a mortgage.
If anyone offers you a good credit score instantly or guaranteed credit repair for an upfront fee, it’s almost certainly a scam. Building credit may not be fast or particularly easy, but it’s something that you can do yourself for free.
FAQ: How To Buy a House With No Credit
Here are answers to common questions about how to buy a house with no credit.
Qualifying for a mortgage is possible with no credit history, but the exact requirements to get approved vary from lender to lender and by loan type. Ultimately, you need to compare offers from different mortgage lenders and understand each lender’s underwriting requirements and process.
Making a larger down payment can increase your chances of getting approved for a mortgage. Borrowers with no credit score could try putting down more than 20% of the home purchase price. If that’s not affordable, keep in mind there are mortgages — such as VA loans — that allow you to put nothing down even with no credit score. You should evaluate your borrowing options and see what type of loan fits your situation best.
A co-borrower isn’t the same as a co-signer. While both are financially responsible if a borrower can’t make their payments, a co-borrower makes regular payments and also legally owns the home. For example, a mortgage has co-borrowers when a married couple finances a home purchase together.
A co-signer, on the other hand, is not considered one of the homeowners or borrowers. Instead, they agree to take over a loan only if the primary borrower defaults.
The Bottom Line on Buying a Home With No Credit
Buying a house when you don’t have a credit history can be difficult and complicated. Be prepared to shop around, submit additional documentation, and potentially pay more. A home is likely the most expensive purchase you’ll ever make, so it’s smart to strive for a good credit score before applying for a mortgage. That helps you get the best deal possible on your investment.
T.J. Porter contributed to the reporting of this article.
