One of the key components to be qualified for a home mortgage is none other than credit. The only issue here is that while there are buyers who have a long and solid credit history, some are only getting started. If you are a first-time homebuyer, there is a small chance that you have enough credit. This can make it a bit challenging for you to get a loan.
Can you purchase a home without a credit score, then? If this is your current situation, you really don’t have to worry. You can still buy a house even if you don’t have a credit score. All you have to do is show and prove that you can afford the monthly mortgage payments and upfront costs.
Read on below to learn about the different ways of buying a house without a credit score:
Apply for a Mortgage with a Co-Borrower
One of the first options is to apply for a mortgage with a co-borrower with a strong credit history. This co-borrower can be a friend, relative, or spouse, with no need for them to live in the house.
The lender will include the co-borrower on the loan and use their credit score and income as the basis for the mortgage qualification. You and your co-borrower have equal responsibilities for paying the mortgage, and both of you will be part of the property title.
Advantage: A co-borrower with strong credit can improve your chances to be qualified for a mortgage.
Disadvantage: To be qualified for a home loan, there might be a need to apply for a smaller mortgage compared to having two borrower incomes.
Apply for a Government-insured Loan
Government-insured mortgages are home loans supported by the federal government. The Federal Housing Administration backs FHA loans that come with flexible requirements for credit.
The mortgage program often requires borrowers to have a minimum credit score of 500. But rather than using the traditional credit report, the lender may request a credit reporting company to provide a non-traditional merged credit report.
The lender can also establish a credit history using the following alternative tradelines:
- Savings deposits worth 12 months
- A personal loan with written repayment terms
- A car lease
- Car insurance payments
- Home rental payments
- Rent-to-own services
- Payments to childcare providers
- Utility payment records such as phone bills
Advantage: You can be qualified for a mortgage with as low as a 3.5% down payment.
Disadvantage: There are mortgage insurance premiums associated with all FHA loans that can increase your payments every month.
Try Manual Underwriting
If your mortgage application undergoes manual underwriting, the underwriter will personally review the application rather than an automated system. When applying for a traditional, the underwriter will check the following about you:
- If your bank account has cash reserves
- If your DTI or debt-to-income ratio is acceptable
- If you earn sufficient income for covering your mortgage payments
- If you have funds for a down payment
In place of the usual credit history, you need to hand over the following documents to present your track record of making payments right on time:
- Phone and utility payments
- Payments for the rest of the recurring expenses
- Rent payments for the past two years
Advantage: You can be qualified for a mortgage with manual underwriting.
Disadvantage: There are lenders that don’t underwrite mortgages manually due to the additional expenses and time involved. Lenders who offer this may charge higher interest rates.
That’s all for this topic. We are hoping that you understand everything in a better way related to Purchase Home Without Credit Score.