How to buy a house with no credit: First-time home buyers

Do you need credit to buy a house?

First-time home buyers can face more challenges than repeat buyers. For example, first-timers often have a poor credit score. More often, they have no credit history at all, which is known in the industry as “a thin file.”

Fortunately, a thin file might not stop you from buying a home. Multiple loan programs today can accept buyers with no credit score at all, as long as they can afford the upfront cost and monthly mortgage payments.

In this article (Skip to…)

• Buying without credit
• How to buy with no credit
• Loan options
• Building credit
• Credit score basics
• FAQ

Can you buy a house with no credit?

Yes, you can buy a house with no credit, but it can be challenging and may require extra effort. Plus, you’ll typically pay higher rates for a mortgage loan.

The likelihood of being approved for a mortgage increases with a solid credit history and good score. However, there are loan options available if you want to buy a house with no credit.

Minimum credit scores by loan program

Although your lender will determine your exact credit score requirements, the following represent typical requirements for various mortgage programs:

• FHA loan minimum: 580
• VA loan minimum: 580-620
• Conventional loan minimum: 620
• USDA loan minimum: 640

An FHA loan is a great option for someone with a FICO score on the lower end. The typical minimum credit score requirement is 580.

Even borrowers with a FICO score between 500 and 579 could get approved by FHA with a down payment of 10% or more. However, few lenders adhere to the 500 minimum; 580 is much more common.

VA loans are a good option for lower-credit borrowers with a military service history.

The VA mortgage program technically has no minimum credit score. Although, many lenders enforce a minimum of 580-620 or higher. So if your score is on the bottom end of that spectrum you’ll need to shop around for a lenient mortgage company.

How to buy a house with no credit

Buying a house with no credit can be challenging, but it is possible with careful planning and preparation. Here are some steps to help you navigate the home-buying process with no credit.

Gather financial information

You may be able to get around not having a credit score. But lenders still need proof you’ll make good on your loan’s monthly payments. They want to know they’re making a sound investment.

Just like other borrowers, you’ll need to document your personal finances to show you can afford the mortgage. For example, lenders will want to see:

• Steady employment
• Steady income documented by personal tax returns
• Savings for the down payment and closing costs
• Cash reserves in a bank account in case of emergency
• Bank statements showing your assets

And, in place of a traditional credit report, lenders may consider other financial obligations that typically don’t show up in your credit history.

You might be able to prove you’re a responsible borrower via on-time rent, utility, cell phone, or internet payments, for example.

Consider alternative credit

Some lenders may consider alternative credit data, such as rent, utility, and phone bill payment history, when assessing your creditworthiness. Rent payments are an especially good indicator of whether you’ll keep up with future mortgage payments.

To verify rental history, the lender will request a “VOR” or verification of rent from your current (and possibly previous) landlord(s). This form shows the rent amount, how long you’ve lived there, and whether you were late on any payments.

A strong VOR can make a big difference in your lender’s approval decision. But rent history isn’t the only important factor. Be sure to pay your other bills — especially student loans and auto loans — on time and in full, as this could make or break your mortgage application.

Save for a larger down payment

A larger down payment can help to mitigate the risk of a no-credit borrower. Aim to save at least 20% of the home’s purchase price, which will allow you to avoid paying mortgage insurance.

Explore government-backed loans

If you have bad credit or no credit at all, you should think about applying for one of the government-backed mortgage programs like FHA, USDA, or VA loans, which have more forgiving credit requirements.

You can increase your chances of successfully buying a house with no credit by following these tips and being proactive in your efforts to establish credit. Keep in mind that becoming a homeowner is possible with the right approach, though it may take some time and patience.

Reduce debt and maintain a low debt-to-income (DTI) ratio

When evaluating your loan application, lenders take your DTI ratio into account. Even if you have no credit, reducing your debt and maintaining a low DTI ratio can make you a more appealing borrower.

Build your credit

If time allows, work on establishing a credit history by opening a secured credit card or a credit-builder loan, paying bills on time, and keeping credit utilization low. This can help improve your chances of qualifying for a mortgage.

Mortgage options for no credit and low credit

FHA loans

Building credit takes time. If you’re ready to buy a home but you lack a credit score, waiting until you’ve built up a worthwhile credit history could feel slow and frustrating — especially in markets where house prices are rising fast.

The better, faster solution is to seek out mortgage loans meant for borrowers with little or no credit to their name. The FHA mortgage is one such option.

As the Federal Housing Administration states on its website: “The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application.”

Instead of turning away borrowers who have not had a chance to build a credit history (or who have preferred not to), the FHA instructs loan officers to look at all aspects of a mortgage application.

This is good for first-time home buyers because FHA loans allow for a low down payment of just 3.5%, which can help a household with good income but less-than-optimal savings move from renting into homeownership.

Conventional loans

Unlike the FHA mortgage program, conventional loans are not known for their relaxed credit standards.

But what many borrowers don’t know is that Fannie Mae and Freddie Mac — the agencies that set the rules for most conventional loans — may be willing to approve borrowers with no credit score.

However, finding a lender who will approve no-credit-score applications is no easy feat. And if you do find one willing to work with you, then expect to put in extra effort.

For instance, you’ll likely need to make a larger down payment — at least 5% or 10% down. The home you’re buying has to be a single-family property you’ll use as your primary residence.

And the maximum loan amount is $ — Fannie and Freddie’s higher loan limits in high-cost areas don’t apply.

In addition, your lender will likely want to see a 12-month history of rent payments.

These loans need to be manually underwritten. Manual underwriting means the borrower can’t be approved by a lender’s computerized underwriting system.

What this means for you is that not all lenders will do conventional loans with no credit score. You’ll need to shop around for one that does.

VA loans

Veterans, military members, and surviving spouses should check their eligibility for a VA loan — even with no credit score or a thin credit file.

The Department of Veterans Affairs states, “There is no minimum credit score requirement [for a VA mortgage]. Instead, VA requires a lender to review the entire loan profile.”

This means you may be able to qualify on the basis of on-time rent, utility, and other payments as opposed to a traditional credit score. Qualifying home buyers can use the VA loan program with 0% down, so it’s a great option for first-time buyers.

Just note, many VA loan lenders require a minimum score of 580 or 620, despite the VA’s lenient rules. So shop around and ask lenders whether they’ll consider non-traditional credit history.

USDA loans

Zero-down USDA loans are geared toward low- and moderate-income buyers in designated rural areas.

For those who qualify, USDA mortgages are an ultra-affordable path to homeownership.

The U.S. Department of Agriculture, which backs USDA loans, says borrowers with no credit score can get approved with on-time payments for things like:

• Rent
• Utilities
• Insurance
• Childcare
• School tuition
• Internet or cell phone services
• Car lease

Like conventional loans, USDA loans with no credit score will need manual underwriting. If one lender denies you for this reason, try again with other lenders until one accepts your application.

How to build credit to qualify for a mortgage

First-time home buyers can certainly buy a house with no credit history. But improving your credit could open doors to better interest rates. The good news is that many people have improved their FICO scores to qualify for a mortgage, and you can too. Here are some steps you can take:

• Check your credit: Get a free copy of your credit report from each of the three major credit agencies (Equifax, Experian, and TransUnion) to find any inaccuracies or discrepancies that could harm your credit score. To improve your credit report, dispute any mistakes
• Pay your bills on time: Make it a habit to pay all of your bills on time, including rent, utilities, and credit cards. Late or missed payments can have an enormous negative effect on your credit score
• Keep credit utilization low: Try not to use more than 30% of your available credit at any given time. Credit overuse might have a negative impact on your credit score
• Maintain open accounts: The length of your credit history influences your credit score. Maintain your oldest accounts as long as they don’t have hefty fees or have a negative impact on your credit
• Limit hard inquiries: Avoid applying for several credit accounts in a short period of time, as hard inquiries might temporarily drop your credit score.

Don’t try to build credit last-minute

You might be tempted to improve your low credit score by opening new credit cards, or even taking out a loan, before you apply for a mortgage. Do not do this.

Unless you’re a year or more from buying a home, opening new lines of credit would actually do more harm than good.

Credit inquiries (applications for new lines of credit) have a negative effect on your credit report. They may only ding your score a few points, but multiple inquiries in the time leading up to your application will give a lender pause.

Be patient; credit-building takes time. The benefit to a borrower’s credit score is very muted until each of the late accounts has 12 month’s worth of timely payment history. You can see our guide to building good credit for tips and tricks.

Listen to The Mortgage Reports Podcast!

What is a credit score?

Your credit score is a numerical value that sums up the information on your credit reports.

The higher your credit score, the more likely you are to make payments. That’s why lenders reward borrowers with good credit scores by approving them for larger loan amounts and lower interest rates.

Your payment history is the single biggest factor in determining your credit score.

This is why first-time home buyers rarely have credit scores that are “excellent.” There’s just not enough history of managing credit and making payments to make that kind of determination.

Bad credit score vs. no credit score

Having a poor credit score is different from having no credit score. It may be better or worse, depending on the reason for your low score.

Lenders typically want to see a clean credit history, meaning you haven’t had a bankruptcy, foreclosure, multiple late payments, or other negative credit information in recent years.

If you have a lower credit score because you’ve consistently mismanaged debts in the past, a lender will be much less likely to approve you for a mortgage.

But sometimes credit scores drop for reasons outside our control. The death of a spouse or primary wage earner, divorce, large medical debts, and other unexpected events can take a big toll on someone’s finances.

If your score is low for reasons outside your control, and you’ve been actively working to improve your credit, lenders are going to look at your mortgage application with a friendlier eye.

Where does my credit report come from?

A credit report is a written history of all creditor accounts which belong, or have belonged, to a person in their lifetime.

Credit reports compile information they get from credit bureaus, which are companies to which creditors report borrower payment history on a regular basis.

In the mortgage space, there are three main credit bureaus—Experian, Equifax, and TransUnion. Each bureau collects the data that helps determine your credit score.

Buying a house with no credit FAQ

Can you buy a house without credit?

Don’t let your lack of a credit score discourage you from purchasing a home. There are ways forward.

Various home loan programs can accept borrowers with no credit score, as long as you prove you’re financially responsible in other ways. This means you wouldn’t need to depend on a co-signer to get approved.

Understand, though, that lenders get to set their own credit rules. So if one won’t accept your application, you may have to shop elsewhere. Don’t give up! If you’re qualified, another lender may approve you.

Today’s interest rates are low. If you’ve been thinking about home buying, now could be a great time to get started. Check your eligibility today.