What Are No-Credit-Score Home Loans?
Consumers who wish to purchase a home may be tempted by offers of easy and speedy "no credit check" home loans. Be advised: there is no such thing as a home loan without a credit check. However, even in today's tight mortgage market, there are options if you have no credit or bad credit.
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No-Credit -Check Home Loans
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A buyer who applies for a "no-credit-check" home loan is looking for mortgage approval without having her credit history checked. Be wary of these mythical offers: only a predatory lender would attempt to sell a "no-credit-check" loan. Even if a buyer were able to obtain a loan of this type, the interest rate and fees associated with the loan make it likely that the buyer would be able to find a better deal just by providing basic background information.
Confusing the Terms
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A lender may lure a potential buyer by claiming a "no-credit-check" prequalification. In this case, the applicant provides basic information, such as employment, income and expense history. The lender issues a "prequalification" letter that the buyer uses as proof that she will get approved for a loan. However, the credit will be checked during the underwriting process. An applicant who misrepresents her financial condition will be rejected.
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Options
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Presumably, a buyer who doesn't want her credit checked has a good reason for wanting to circumvent this step. Late payments, foreclosure and bankruptcy have a significant effect on the mortgage approval process. Even in today's difficult mortgage market, lack of credit or bad credit does not make it impossible for a buyer to find a loan, and veterans and public servants enjoy friendlier options. However, be prepared to pay higher interest rates, put more money down or find a cosigner.
Next Steps
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Two resources for homebuyers concerned about their credit status are the National Foundation for Credit Counseling and the Federal Housing Administration. The NFCC has a free online homeownership tutorial and provides personal counseling, as well; the NFCC does not provide loans. The FHA offers government-backed programs with traditional lenders, including lower down payment and credit score requirements. Special programs are available for public servants and veterans. Alternatively, finding a willing cosigner increases the chances that your loan application will be approved.
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