Can You Get a Mortgage With No Credit?

What Does It Mean to Have No Credit?

Having no credit, also known as being "credit invisible," means you don't have enough recent credit activity for the credit bureaus to generate a credit score. There are several circumstances that lead to lack of credit, including:

• Lack of credit experience: This often applies to young adults who are just entering the workforce. If you don't yet have a credit card or loan in your name, you won't have a credit history. Consider building your credit by applying for a credit-builder loan or secured credit card, or being added to a trusted family member or friend's credit card account as an authorized user. You could also use Experian Go™ to create an Experian credit report and begin building credit.
• No recent use of credit: Retirees and others who have paid off debts and who haven't used a credit card or other financing in a while may have no credit score. You'll need one to two active credit accounts with transactions over the previous three to six months to generate a credit score under most credit scoring models.
• Limited experience living in the U.S.: Recent immigrants to the U.S. will also not have a credit score because they have no credit history at the three national credit bureaus. Even if they have a credit score in their home country, it cannot be transferred to the U.S.

Having no credit is not the same as having poor credit. It may be more difficult to get a mortgage with a very low credit score, one below 500, than it would be to get one with no credit score at all. Additionally, having no credit may be an easier problem to solve: It can be faster to build credit from scratch than to repair a damaged score.

Can You Get a Mortgage With No Credit?

You can get a mortgage without a credit score, though whether you will depends on several factors. The process may be more difficult, as it will require bypassing the automated mortgage application process used by many lenders in favor of manual underwriting. Here's what each entails:

• Automated underwriting: This is the more common method for evaluating mortgage applications. It is a digital process through which an algorithm assesses your income, current debts and credit history and determines whether you qualify for a mortgage. It's typically faster than manual underwriting and may require less documentation, since your credit file will provide a comprehensive picture of your debt repayment history.
• Manual underwriting: Instead of an algorithm assessing your financial information, a loan officer will review your application by hand. This is a more time-intensive process and requires more documents to make up for the fact that you don't have a robust credit file. But it allows for more flexibility if you are a nontraditional applicant, such as if you can make a large down payment and have a high income but have no credit history.

To take part in manual underwriting, you'll need to provide the following information:

• History of regular housing and other payments to creditors, such as cellphone providers, utility companies and landlords
• Bank account statements to demonstrate cash savings
• Two years' worth of tax returns
• Proof of employment, such as a verification letter from your employer, that applies to the previous two years
• Prior 30 days' worth of pay stubs
• Verification of self-employment income, such as tax and other financial documentation
• Financial and credit information for a cosigner with good credit, if you have one, which could help strengthen your application

Mortgage Options for Those With No Credit

There are multiple mortgage types that you may qualify for while undergoing the manual underwriting process. Here are your options when you have no credit.

Conventional Mortgages

A conventional mortgage is a non-government-backed loan, and it is the most common type of mortgage. You may be able to secure a conventional loan with a down payment of as little as 3%. But in a manual underwriting situation, lenders will likely require higher down payments and a lower DTI than if you underwent automated underwriting.

There's another reason to aim for as large a down payment as possible: If your down payment is less than 20%, the lender may require you to pay for private mortgage insurance (PMI), which helps protect the lender in case you default on the loan. You can ask the lender to remove PMI from a conventional mortgage once you've made enough payments to have at least 20% equity in the home.

FHA Loans

A mortgage backed by the Federal Housing Administration (FHA), otherwise known as an FHA loan, is a good option if you don't have strong credit. FHA loans are designed for homebuyers whose credit scores are less than ideal or who can't afford to make a significant down payment on a conventional loan. Federal guidelines allow lenders issuing FHA loans to consider "nontraditional credit histories," including candidates with no credit score.

General requirements for an FHA loan include:

• A down payment of at least 3.5% with a credit score of at least 580, or 10% with a credit score of 500 to 579
• DTI ratio (that is, the mortgage payment as a percentage of gross monthly income) no greater than 31%
• Paying mortgage insurance for the full duration of the loan (or for 11 years if you make a down payment of 10% or more)
• Enough cash in the bank at closing to make at least one monthly mortgage payment for a one- or two-unit property
• The house you buy must be your primary residence, as opposed to a vacation home or rental property

How to Build Your Credit Score for a Mortgage

While it's possible to get a mortgage without a credit score, the process is typically faster when you have established credit. Even a fair to good credit score will likely mean you have more lending options to choose from than trying to apply with no credit at all. If you've never had a loan or credit card, you can establish a credit score within about six months. Here's how:

• Make a purchase with a previously inactive credit card. If you've gone "credit invisible" because you simply haven't used credit in a while, you can re-establish a credit score simply by making a purchase with a new credit card or one that has been inactive. It can be a small purchase, and if you pay it off immediately, that'll be enough to regenerate your credit file.
• Apply for a credit-builder loan or secured credit card. These options are designed for consumers who want to build up or improve their credit, and will help add positive payment history to your credit report without putting you at risk of going into debt.
• Regularly make purchases and pay them off right away. Once you've established or revived your credit report, you can build up your score by making regular purchases and payments in any amount. As long as the payments are made on time each month, they'll add to your positive payment history and will tend to increase your credit scores.

The Bottom Line

A lack of credit history doesn't need to be a barrier to getting a mortgage. Manual underwriting makes it possible. But you'll need to organize a more extensive set of application materials and be prepared to demonstrate other strengths on your application, like a larger-than-usual down payment or lower-than-usual DTI. If you have the time to build up your credit score before applying for a mortgage, getting to at least a score of 580 puts you in the range to get an FHA loan with just a 3.5% down payment—which may be worth the wait.