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Tips for Homebuyers with No Credit

Sarah Brady, NFCC August 4, 2015

Can you qualify for a mortgage with no credit? It’s nearly impossible to do.

With that said, most adults in the U.S. do have credit scores. If you’re one of the few who doesn’t, that doesn’t mean you’ll never get a mortgage. It simply means there are steps you need to take to establish credit before shopping for a loan.

Then, once you have your first scores, there are ways to improve your shot at getting a mortgage in the future. Here’s what you can do.

Why do some people have no credit scores?

If you’ve never had a credit card or loans, you probably don’t have any credit scores. Why? Because credit scores are based on your history with managing debt.

That doesn’t mean you’ll never have credit scores, it just means you need to take some steps to start building credit. According to FICO, the company most lenders use to calculate your credit scores, you’ll have your first scores once you’ve used a credit card or loan for at least six months.

Can you get a mortgage with no credit?

Most lenders have minimum credit score requirements. In other words, you can’t usually qualify for a mortgage unless you have the minimum scores they require. Typically, lenders look for scores of at least 640 or higher.

With some loan types, however, you might find more flexibility when it comes to credit scores.

For example, when it comes to VA-backed loans and USDA-backed loans, these government agencies do not have minimum score requirements. On the other hand, you have to go through a lender to apply for either program. While VA and USDA-approved lenders may have lower requirements than conventional lenders, borrowers with no credit are still likely to be denied. 

Five tips to help you qualify for a mortgage

1. Work on your credit scores

There are several ways to improve your shot at getting a mortgage, but if you have no credit, you have to start working on this aspect first. The most important thing to do is start building up your scores ASAP.

This can be hard to do, since you usually need decent credit to qualify for a credit card or loan. But there are some ways to start from scratch:

  • Authorized user: Ask a loved one with good credit to add you to their oldest credit card as an authorized user. When they do, their account will appear on your credit reports and help you build credit.
  • Secured credit card: These credit cards are available for people with little-or-no credit. You qualify by making a refundable deposit. Just make sure to apply for a credit card that eventually converts from secured to unsecured, so you can keep it open indefinitely and continue improving your scores.

In reality, it may take you a couple of years to build up the scores you need to qualify for a mortgage. However, you can speed up the process by taking the other steps on our list.

2. Increase your down payment

While many mortgage lenders require credit scores of 620 or higher, some will lower that figure if you have a big down payment. As an added benefit, a large down payment can also help you qualify for a lower interest rate and make your purchase more affordable.

How much money do you need for your down payment? It varies by lender, so you may want to shop around and ask about qualifications. When you do your comparison shopping, try reaching out to credit unions first, since they tend to have more flexible loan requirements.

3. Look for a government-backed loan

Some government agencies have special mortgage programs that can make it easier for you to qualify for a mortgage with bad credit.

As we mentioned above, you might consider a VA or USDA-backed loan, since the government does not have specific requirements for credit scores. Alternatively, you can check into loans backed by the Federal Housing Authority (FHA).

With FHA loans, you can qualify in a few different ways. If you have a down payment of 10% or more, you can qualify with credit scores as low as 500. If your down payment is less than that (down to a minimum of 3.5%), you’ll need scores of 580 or higher. 

4. Check out first-time homebuyer programs

First-time homebuyer programs (FTHBs) are built to help people that might not otherwise be able to buy a home. There are currently over 2,400 FTHB programs in the U.S., and there’s a chance you could qualify for a variety of them.

How can an FTHB program help you? In a number of ways. These programs come in many shapes and sizes. For example, some of them focus on offering mortgages with flexible credit score requirements, while others provide you with grant money to help cover your down payment.

To find out what’s available, start by searching for nonprofit and government agencies in your city, county or state that work with first-time homebuyers.

5. Work with an NFCC-certified credit counselor

There are a lot of factors to consider when you’re preparing to apply for a mortgage. For the average person, it’s overwhelming to try and figure out what to work on first.

Fortunately, you don’t have to do it alone. If you want professional guidance, our NFCC-certified credit counselors can help you in a number of ways. They can work with you to review your credit reports, offer personalized strategies for increasing your down payment and more. They may also offer first-time homebuyer workshops in your area.

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