The National Association of Realtors reports that 87% of homebuyers financed their purchase.
The traditional route to buy a home involves a mortgage broker and real estate agent. Lenders always use your credit score to approve your loan.
It seems impossible to buy a home with no credit. Believe it or not, there are ways to purchase a home without the need of a credit score.
It involves thinking outside the box and looking beyond the traditional means of buying a home with no credit.
Discover how to buy a house with no credit in this in-depth guide.
1. Pay a Large Down Payment
Lenders approve loans based on risk. Think from their perspective for a minute. They’re taking on a lot of risk by agreeing to lend hundreds of thousands of dollars to you.
They use a credit score to assess their level of risk. Lenders look for a long credit history of on-time payments.
They also look at your use of credit. Maxed-out credit cards are a sign of financial trouble.
Since you don’t have credit, lenders can’t assess the risk. One way around that is to take on a lot of risks yourself.
A large down payment shows that you’re serious about buying a home and you have the means to make a large down payment.
You’re moving the risk from the lender to you. That makes lenders willing to work with you. How much should you have for a down payment?
Anywhere between 20% to 30% is enough to get a lender’s attention.
2. Get a Co-Signer
You might not have credit, but you can leverage someone else’s good credit for a credit score.
Banks use the credit score and income of the co-signer to approve the loan. The co-signer agrees to make loan payments if you don’t make payments.
This agreement is used by first-time homebuyers. They’ll have a parent co-sign the loan.
You have to be very careful about these agreements. Something can happen, such as a job loss or a drop in income. If you miss payments, it’s not just your financial situation that gets damaged.
The co-signer’s credit score takes a massive hit as well.
3. Pick the Right Mortgage
Buying a home with no credit doesn’t exclude you from getting a mortgage. There are lenders and mortgage programs that understand that not everyone has the same financial history.
Government-backed loans like VA, USDA, and FHA loans use a variety of criteria aside from your credit score.
For instance, FHA loans are backed by the Housing and Urban Development Authority. The rules state that lenders can’t disqualify someone because they lack a credit history.
You have to meet other standards, such as on-time payments of rent and utilities for 12 months or more.
Another option is a 15-year fixed-rate mortgage. You’ll fully own the home faster than a 30-year mortgage and you get better interest rates.
4. Owner Financing
How would you like to skip working with banks to buy a home? You won’t have to pay cash for a home purchase, either.
Owner financing helps homebuyers because you work directly with the seller. They extend the financing for the home purchase, and you agree to make installment payments each month.
The interest rate for owner-financed homes is between 3% and 10%. This is a little higher than what banks offer. At the same time, the approval requirements are much lower.
You’ll have to find owner financed homes. Check with real estate agencies and listing services for homes financed by sellers in your area.
5. Show Stable Income History
Banks typically want your income to be 2.5 times your mortgage payments.
Show that your income exceeds that ratio. Banks are going to want to lend money to you, even with no credit.
It helps to show that your income is stable. Stay in the same job for a couple of years before applying for a loan.
6. Rent to Own
Rent to own is another method that sellers use to work with non-traditional homebuyers. In a rent to own situation, you rent a home for a few years.
You’re essentially leasing the home. You make payments each month and those funds go towards the down payment.
During the rent payment period, the owner is still responsible for repairs and maintenance. You’ll be able to experience the neighborhood and the home before deciding to buy.
7. Get a Secured Credit Card
Can you quickly build credit to show that you can pay a mortgage? Yes, you can. If the other strategies for buying a house with no credit don’t work for you, you can still build credit fast.
You’ll get a credit score that might be enough for lenders to work with, even with a short credit history.
What you can do is get a secured credit card. A secured credit card has a security deposit for a certain amount, usually between $200 and $500.
The amount that you deposit is your credit limit. You can use the credit card and pay off the balance each month.
That gets reported to credit bureaus and you’ll soon have a credit score.
How to Buy a House With No Credit
It’s not impossible to buy a house with no credit. You just have to know how to make the most of the opportunities that exist.
You just learned seven strategies for buying a house with no credit. Put any one of them to use, and you’ll get the home of your dreams.
Now that you know how to buy a house with no credit, take a look at the Home Improvement section for DIY project ideas for your new home.
