Could you get approved for a mortgage with no credit history?

Question

There are questions on this site that ask whether or not bad credit is worse than no credit. There are questions regarding how to stay out of credit card debt (or debt in general). There are also questions regarding how to best build credit as a young person. But, is it possible to be financially stable and be approved for large loans if you decide to live off the "credit grid" (no credit cards, no auto loans, etc.)? One of the biggest purchases a person can make arguably is a house. Therefore, if a person has no/limited credit history, and has a down payment equal to 20% of the property sale price saved in cash, will he/she likely be approved for a mortgage?

Answer 1

You may not be able to get a conventional loan, but you could potentially get an FHA loan.

They will use other things to prove credit-worthiness, like:

• utility payment records
• rental payments
• automobile insurance payments

From the FHA website: FHA Loan With No Credit History

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...Some prospective borrowers may not have an established credit history.

The FHA has a procedure in such cases, as described in HUD 4155.1. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from utility payment records, rental payments, automobile insurance payments, and other means of direct access from the credit provider...

https://www.fha.com/fha_article?id=506

Answer 2

Your best bet would be with a local bank or credit union that you have a long established history with. Many of the paperwork hurdles that I have experienced elsewhere were missing when I applied for a loan through a credit union because they already had my account history available to look at. They could see regular deposits from my employers and regular withdrawals from my utilities and credit card companies.

For example, they actually compared the outstanding balances reported by my credit card companies to the payments made from my checking account to the same credit card companies. The loan officer actually commented that he could see that I pay my balances in full each month. If I didn't have credit cards that I was paying, he still would have seen monthly payments to utilities, and he would see the average balance in the account reflected far more than my monthly expenditures.

I have an excellent credit score, but being able to talk to the person evaluating me for a loan would give me the opportunity to explain if there were any concerns. Obtaining credit without established credit is very possible. Having a relationship with the credit issuer will improve the terms of that credit.

Answer 3

Could you get approved for a mortgage with no credit history?

Yes. You might not get one from a big national bank or through an online-only process, but smaller banks or credit unions might be willing to give you a conventional loan even with no official credit score. Large banks and mortgage factories have more than enough customers with credit histories (good and bad), so it's not worth their time to invest in the additional underwriting necessary to evaluate those with no formal credit score.

Some things that might help in the process:

• Documentation of payment history (especially large payments like rent)
• Stable income (lowers risk)
• Low loan-to-value ratio (ensures that the bank can get all of their money back if something does go wrong)

The bottom line is that the bank needs some level of comfort that the loan will be paid back on time. If there is any uncertainty, they can offset that risk with a higher interest rate, or might decide not to take on that risk.

Answer 4

Yes, but it depends.

When I moved to the US, part of my package involved access to a mortgage from Citibank. I had zero credit history in the US; it took me 18 months before anyone in the States would issue me with a credit card because of my lack of US credit history. And that credit card only had a limit of $300, even though I had by taht time a mortgage with Citimortgage for six figures.

Answer 5

First off the FICO company is attempting to change their algorithm to include things like rent, utilities, etc so it is not just based on credit. If you are some time off from buying a home they may be able to use your normal bill payments to establish your credit worthiness.

Secondly some banks still do manually underwriting, the way the used to do it before the advent of FICO scores. Its lengthy and hard to find banks that still do it this way, but it is possible. I have not had experience with this but you may attempt to establish a relationship with a bank that still does.

Along those lines I would talk to the bank where you do your regular checking. If it is a smaller credit union or local/regional bank they may be willing to underwrite your loan without a credit score. You may want to sit and talk with a banker, who will push you toward obtaining a debt product, but you will have to be firm that you are not interested in that.

You could always save up and purchase a home for cash. It is tough, but it is possible.

God may strike me down for saying this, but, if you are unsuccessful in those areas, and you want to avoid an FHA loan, you could build a credit score without paying any interest. You could obtain a credit card that you use for things like fuel purchases, utility payments (provided they have no fee) and anything else where you cannot add on extra things. Then pay it off each and every month.

Using CCs for groceries, eating out, and even things like Amazon will cause you to spend more than if you are using debit so I would avoid that.