Can You Get a No-Credit-Check Mortgage?

Applying for a new home loan can be intimidating, especially if you have a less-than-ideal credit score. While most loan programs and lenders have minimum credit score requirements, it’s possible to not have a credit score and qualify for a no-credit-check mortgage. Here’s a look at what to expect from the process and the options you’ll have.

How to get a mortgage with no credit score (and no credit check)

Yes, you can get a mortgage even if you don’t have a credit score, or if you’re looking to avoid a credit check because of bad credit. Here are four strategies to get a no-credit-check mortgage approval:

1. Get a cosigner or co-borrower

Whether you have poor credit or no credit score at all, adding a creditworthy cosigner to your mortgage loan can be one way to improve your approval odds.

cosigner is someone who agrees to share responsibility for your loan and its timely repayment — even if you’re the one technically making mortgage payments each month. Your cosigner may be a spouse, parent, sibling or even a close friend who’s willing to be added to your mortgage. It’s important to note that your loan and its repayment history will also show on their credit reports.

If you’re going in on the home purchase with a co-borrower, you can avoid having your credit checked altogether — as long as your partner is contributing more than 50% of the qualifying income.

2. Make a large down payment

The larger the down payment you make on a home, the less risk the lender has to take on when they offer you a mortgage. If you were to default on your mortgage payments, the lender has a better chance of recouping their money if your loan balance is on the low side compared to the home’s value.

That’s why offering a large down payment may help improve your odds of being approved for a new loan — even if you have an imperfect credit history. In some cases, lenders and mortgage loan programs may actually require a larger down payment if your credit score is low.

3. Go through manual underwriting

During the loan underwriting process, a lender analyzes how likely you are to default on your new loan. This means looking at factors such as income, employment status, existing debt and other expenses to see if you’re in a reasonably good position to make your monthly payments without struggling.

Many lenders today use automated underwriting systems, which utilize computer programs to initially vet mortgage loan applicants. These systems are designed to find red flags, such as a low or nonexistent credit score, and may trigger a loan application denial.

By requesting a manual underwriting process — meaning that a human underwriter goes through the application themselves — you can avoid an automatic denial. These underwriters use their own judgment in reviewing your application, and may take a more holistic view of your financial situation.

4. Use credit unions or online lenders

If you have an existing relationship with a local bank or credit union, you may have a better chance of mortgage loan approval there. That’s because local institutions often have more flexible lending requirements and a more personalized approach. If you have other products through that institution — such as an auto loan or credit card — and have a healthy payment history on those accounts, they’re likely to take this creditworthiness into account.

Additionally, you may have better luck applying with online lenders, some of whom specialize in bad credit home loans. This allows you to shop around with multiple lenders at once, making it easier to find one with more flexible loan requirements.

How to prove you’re creditworthy without a credit score

In many cases, lenders will accept alternative credit histories if you don’t have the types of accounts that show up on the credit bureau reporting systems. This nontraditional credit history involves verifying your payment history on other obligations you have over the past 12 months.

Keep in mind that this alternative payment history must be spotless. If there’s anything derogatory on your report, like unpaid utility bills or child support, in most cases you won’t be eligible for alternative credit options. Here are the major things lenders look for when evaluating a nontraditional credit history:

Rent payment history

Absent a credit score, a lender will be most interested in how you’ve managed your rental payment history. The most recent 12 to 24 months of rent will be a big indicator of whether you’re likely to pay a new mortgage on time.

You may be asked to provide a 12-month payment history with canceled checks or bank statements verifying your on-time payments. A copy of the lease will also be necessary to show that you were complying with the terms of a legal agreement, much like you will be when you obligate yourself to a mortgage.

Cash payments won’t work, and if you’re renting from a relative or friend, this won’t be acceptable for alternative credit underwriting.

Explore whether it’s better to rent or buy a home with our guide.

Utility bills

Another sign that you’re ready to buy a house is proof that you’ve paid utilities at your current residence on time. Again, you’ll likely have to show proof, like checks or bank statements.

The utility bills should also be registered in your name. If they don’t, you won’t be able to use the account as one of the options for your credit.

Other nontraditional credit items

You may be asked to show proof that you’ve made on-time payments toward two to three bills that aren’t necessarily related to your housing, like cell phone, cable, car insurance or life insurance bills.

Any type of account that you pay monthly and have had for at least 12 months will usually be acceptable for the additional credit items needed. They may not help you qualify for a mortgage if you’ve had late payments within the last 12 months, however.

How lenders verify nontraditional credit histories

Lenders often order an Anthem Report, a type of nontraditional credit report, to help verify your payment history. This will generally only work if the accounts in question are verifiable through a third party.

Your lender will let you know if an Anthem Report is necessary, and will ask you to provide the name, contact number and account information for your alternative credit accounts.

Loan programs that allow for mortgage approval with no credit score

There are specific lenders and mortgage loan programs that cater to low and even no credit score applicants. Some of these are government programs, which require mortgage insurance, funding fees or guarantee fees to protect the lender and make it easier for them to approve borrowers with added risk factors (such as a limited credit history).

All of these programs only allow borrowers to purchase a primary residence — no second homes or investment properties are allowed.

Here’s an in-depth look at how different common programs handle potential borrowers without a credit score.

Conventional loans: How to qualify with no credit score

Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgages in the residential housing market. The conventional loan programs they offer require higher credit scores than government-backed loan programs, and less total debt compared to your income, which is known as your debt-to-income (DTI) ratio.

While they do allow for approvals if you don’t have a credit score, there are additional restrictions.

Down payment minimums

• 10% to 20%, depending on the lender’s guidelines
• 3% on Fannie Mae’s HomeReady® loans
• 5% on Freddie Mac’s HomePossible® loans

Mortgage reserve requirements

Up to 12 months’ worth of payments as reserves, depending on applicant

DTI ratio maximums

36% (versus 45% for borrowers with a traditional credit score)

Private mortgage insurance (PMI)

Your PMI premiums will likely be more expensive if you’re approved with nontraditional credit.

FHA loans: How to qualify with no credit score

The Federal Housing Administration (FHA) insures FHA loans with more flexibility around credit score and DTI ratio. It also allows for nontraditional credit histories, although the requirements are slightly different from conventional mortgages. These requirements include:

A nontraditional credit report

The FHA does require an independent third-party credit report to verify any nontraditional credit information that you provide. All credit providers, including your rental reference, must be verifiable by an outside company — if you rent from a family member or friend, you’re not eligible for the loan.

In most cases, you’ll need to provide a 12-month payment history from three sources. At least one of them must appear on the following list:

• Rent
• Telephone service
• Gas, electricity, water, television service or internet service

If you need more sources to round out your three, the FHA will also consider the following:

• Insurance premiums that aren’t deducted from your payroll (renters insurance, life insurance)
• Child care payments
• School tuition
• Payment on medical bills not covered by insurance
• 12-month documented history of regular cash deposits into a savings account that were made at least quarterly, don’t include nonsufficient funds (NSF) penalties and weren’t deducted from a paycheck
• A personal loan with terms in writing and a 12-month payment history at a regular, set amount

The payment history can’t reflect late payments in the last 12 months and no more than two 30-day late payments in the last 24 months on all other provided account histories.

Down payment and DTI ratios

Borrowers with no credit score need to meet the same down payment and DTI ratio requirements as borrowers with traditional credit scores:

The standard down payment minimum is 3.5%, while the standard DTI maximum is 43%.

FHA mortgage insurance

One advantage of an FHA loan is that your FHA mortgage insurance payment doesn’t depend on your credit score. That’s a notable difference when compared to conventional loans, which come with higher mortgage insurance premiums if a borrower has a lower score.

Mortgage reserves can help you qualify for an FHA loan

If you can show at least three months’ worth of mortgage reserves, you may gain a little more flexibility on some of the other requirements, including credit score. Ask your loan officer about qualifying using “compensating factors,” and whether they apply in your case.

VA loans: How to qualify with no credit score

VA loans, which are backed by the U.S. Department of Veterans Affairs (VA), make home ownership possible for eligible military borrowers. The VA doesn’t set a program-wide minimum credit score, since it recognizes that many recently discharged veterans don’t have a credit history. Because of this, VA loans have a well-developed system for approving veterans with no FICO Score.

As long as a borrower can provide proof of recent rental history and additional payment records — showing, for example, a history of payments on utilities, car insurance or other expenses — the VA permits a lender to approve their loan application.

That said, VA loan lenders have the freedom to set their own guidelines, and some are stricter than others. You may need to shop around to find a compatible lender.

VA funding fees

VA loans come with funding fees, which function similarly to mortgage insurance. However, funding fees aren’t calculated using your credit score, so you won’t end up paying more if you qualify with nontraditional credit.

USDA loans: How to qualify with no credit score

The U.S. Department of Agriculture (USDA) offers USDA loans to people in low-income areas of the country, usually in rural areas. One of the best features of the program is that there’s no down payment requirement.

Like FHA loans, the USDA will allow borrowers to obtain a loan with no credit scores. Lenders prefer a traditional credit report in most cases, but will use two to three alternative credit references to evaluate an applicant’s credit if needed. Those alternative sources must show a 12-month payment history, and the credit source must be verified independently (payments made to family members don’t qualify).

USDA guarantee fees

USDA loans don’t have mortgage insurance impacted by credit scores. Instead of mortgage insurance, USDA loans charge guarantee fees at a flat rate to all USDA borrowers regardless of credit score or lack thereof.

Hard money loans: How to qualify with no credit score

Hard money loans are short-term loans often used by house flippers or other borrowers who just need a short-term loan of six to 24 months, and they come with much higher rates than traditional mortgages.

Hard money lenders often skip the question of credit altogether, since their loan approvals are largely based on your collateral’s value rather than your financial profile. This is great for borrowers with bad credit or no credit, but it’s also crucial to understand that a hard money loan isn’t typically going to be a good replacement for a traditional mortgage.

Bad credit vs. no credit

In the eyes of a lender, having bad credit is very different from having no credit. A borrower with no credit score is simply someone who hasn’t held credit-based and/or bureau-reported accounts in the past. They lack an official score even though they may have demonstrated financial responsibility for years.

From a lender’s perspective, having limited or no official credit history is better than having a history of mismanagement. A borrower with bad credit, on the other hand, is someone who has failed to meet their financial obligations. This could mean making late payments, holding delinquent accounts or carrying high balances.

Need to check on your credit score? See it now for free with LendingTree Spring. You can also get personalized credit-boosting tips delivered straight to your inbox.

What are some reasons you might not have a credit score?

You must actually have a credit history that can be scored by the major credit bureaus in order to have a credit score. If you’ve taken out a student loan, credit card or an auto loan you will have a credit score. Here are some reasons you might not have a credit score:

• You use cash instead of paying for things with traditional credit accounts
  This may be a practice you grew up with, part of your religious views or a result of earlier bad experiences with credit. There are also financial advisors, life coaches and other professionals who advise against using credit at all.
• You’re young and haven’t built credit
  Recent high school graduates often fall into this category, as they may not have had any need for credit if they’ve been living at home.
• You haven’t used credit in the last 24 months
  This often happens to elderly people on a fixed income who don’t use credit often. Or maybe you’re an active duty member of the military who was on an extended tour of duty and didn’t use any credit for several years.
• You’re a new immigrant to the country with no U.S. credit history
  If you recently immigrated to the United States, it will take a while to start establishing a credit history. Until you have 60 to 90 days of activity on any type of credit account, it’s unlikely that you’ll have a credit score.

5 ways to build your credit

1. Get a secured credit card: A secured credit card allows you to deposit some cash, and then use it as collateral to back a credit card. The longer you use it, the more credit you build, until eventually you have enough of a history to apply for regular unsecured cards.
2. Pay bills on time: Once you’ve opened credit cards, pay them on time. Payment history makes up the biggest part of your credit score, and paying on time is the best way to build up a solid credit score.
3. Open an unsecured credit card: Once you’ve established a credit history, you can open a traditional credit card and use it sparingly. Keep in mind that just having the card doesn’t generate a score — you must actually use it and make payments to drive the score.
4. Become an authorized user on a credit card: If you have a friend or relative who’s willing to let you be an authorized user on their card, you can build some credit history. However, use it with caution: Your payment decisions will also affect the person you’re authorized to use the card with, so your late payments become their late payments.
5. Take out a credit builder loan: Banks, credit unions and online lenders offer credit-builder loans, which involve depositing a small sum of money on the borrower’s behalf into a savings account or certificate of deposit (CD), without the borrower actually being able to access it at first. The borrower makes payments on the balance over a set period, usually six months to two years, and receives the money after the payments are made.