Getting A Mortgage When You Don't Have Credit

When a person thinks of buying a home, they may immediately consider their credit score and how it impacts their ability to secure a mortgage. Some people may even feel that they cannot purchase a home because of bad credit. Others may feel that lenders would not offer them loans because they have no credit. 

Here is a bit of information about a lack of credit and what you can do to obtain a mortgage when you don't have a strong credit history.

Having No Credit

Poor credit and a lack of credit are not synonymous. A person has poor credit when their credit score ranks low on the credit scale. A person with a lack of credit has an insufficient credit history and consequently has no credit score.

The score is a number comprised of three digits and assigned based on a person's credit history and their debt-to-credit ratio. A person achieves a higher score for paying debts on time and keeping their debt low compared to the amount of credit that is available to them. The higher the score, the more creditworthy that a mortgage lender may deem the credit applicant.

Providing a Credit History When There Is None On the Report

Even if a person has no formal credit history on their credit report, they are likely to have access to information that helps lenders determine their creditworthiness. Creditors can review payment information from utility companies, rent receipts, and insurers that may not be formally reported to credit agencies. This data can show the regularity and timeliness of payments.

Creditors can also review information about the applicant's employment and salary to determine their ability to pay a loan.

Mortgage Loans That Allow Nontraditional Credit Information

Nevertheless, not every mortgage loan is able to be secured with nontraditional credit information. Homebuyers that do not have a traditional credit history should seek mortgage loans that are backed by the following government agencies:

  • U.S. Department of Agriculture (USDA) — If a buyer is seeking a home in a rural area, this type of loan may be applicable.
  • U.S. Department of Veterans Affairs (VA) — VA loans are available to people who are currently serving or have served in the military.
  • Federal Housing Administration (FHA) — These loans are designed for buyers who are purchasing their first home or who have owned a home before and are purchasing a new one.

If you have no credit and would like to purchase a home, schedule a consultation with a mortgage loan specialist in your local area, and look for lenders who offer no credit financing.