Can I Get a Home Loan Even Though I Don't Have Any Credit?
You have managed your finances well, but paid cash for everything. You stayed away from debt. You even have money for a down payment on a home, but you don't have the entire purchase price. So, you decide to borrow money to buy that home. But you are wondering: Can I get a home loan with no credit? With some extra work, you may be able to get that home mortgage.
Other People Are Reading
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FHA Loans
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FHA mortgages are loans that private banks make that the Federal Housing Authority insures against default. You may need to pay for mortgage insurance as a borrower, but these premiums may allow you to get the mortgage that you want. FHA loans do not consider credit as strongly as other types of loans, and have provisions within their underwriting guidelines specifically for borrowers who have chosen not to establish credit.
Alternate Credit - Rentals
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When you have no credit, you must be prepared to prove to the bank that you are not only capable of making the payments, but that you are willing to pay as well. Demonstrating to a potential mortgage lender that you have made your rent payments on time for at least a year, with two years or more being even better, makes a powerful statement about your creditworthiness. Rent receipts demonstrating on-time rent payments will do this for you, as will a letter from your landlord with his signature saying that you pay your rent on time.
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Alternate Credit - Other Sources
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It is common for banks to require three different credit references in addition to a rent or mortgage reference. You can use alternate credit for these as well. A record of paying your utility bills on time, such as a cellphone bill or electric bill, is a source of alternate credit. Provide your lender with one year's worth of paid utility bills. Records of car or renter's insurance on-time payments can be used as well. Try to get letters from each of these sources listing your account number on their letterhead, verifying your prompt payments.
Down Payment and Term
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A lender has less risk when the borrower puts a larger down payment toward the purchase price of a home. A 20 percent or greater down payment is helpful when getting a loan with no credit. Loans with less than 20 percent down usually require private mortgage insurance. Also, a shorter-term loan, such as 15 years, is more likely to be approved with no credit than longer-term mortgages because of its lower risk and faster equity building.
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References
- Photo Credit no credit cards image by Daliah Immel from Fotolia.com
