How to buy a house with no credit: A guide for first-time buyers

If you have no credit history, it might seem that buying a home is out of reach. In reality, you have several options—from manual underwriting to FHA loans.

In this article, you’ll learn how to buy a house with no credit, including strategies and mortgage options for homeowners building their financial profile from scratch. You’ll also find out how Better can smooth the way with a simple mortgage experience designed for all kinds of borrowers, even those without traditional credit.

Do you need credit to buy a house?

Contrary to popular opinion, you don’t need an established credit history to buy a home. While a strong credit profile gets you the best loan terms and interest rates, there are ways you can buy a home with no credit.

Some lenders offer alternatives for buyers without a verifiable history of on-time debt payments, and there are mortgage options designed to work with nontraditional borrowers There may be more documentation and a few extra steps involved, but buying a house with no credit history is completely doable.

...in as little as 3 minutes – no credit impact

No credit vs. bad credit

There’s a difference between having no credit history and having bad credit history. If you have no credit, that means you don’t have any account history, like credit cards or personal loans, reported to the major credit bureaus. You’re “credit-invisible”: There’s not enough information about your financial history to derive a meaningful credit score.

If you have bad credit, on the other hand, you do have a credit history — it just needs some work. Problems like late payments, high debt balances, or accounts in collections may have hurt your score over time.

The factors that go into calculating credit scores include:

— Payment history

— Debt balances

— Credit history length

— Credit mix

— New credit inquiries

Credit scores are grouped into rankings like this:

— Poor: 580 and below

— Fair: 580–670

— Good: 670–740

— Very good: 740–800

— Excellent: 800 and above

How can you get a house loan with no credit? 5 strategies

Here are some workable options for getting a mortgage for first-time homebuyers with no credit:

1. Get manual underwriting

Automated underwriting relies heavily on credit reports. With manual underwriting, a loan officer will look at your financial history by hand, deep diving into information like:

— Rental payment history

— Utility bills

— Auto insurance payments

— Bank statements and pay stubs

— Income tax returns

Analyzing this data helps lenders create a picture of your creditworthiness, even though you don’t have a standard credit report for them to pull.

2. Make a big down payment

How can a larger down payment help in buying a house without credit? It’s simple: The more you put down, the less financing you need to take out. This can make it easier to qualify for a mortgage without an established credit history because your loan is less risky. Plus, you may not need to take out private mortgage insurance (PMI) if you put down a payment of 20% or more, lowering your monthly costs.

3. Find a co-signer or co-borrower

If a close friend or family member is willing to come on as a co-signer, they agree to take responsibility if you’re unable to stay on top of your mortgage. This lets you piggyback on their credit history without having one of your own.

Co-borrowers also share legal responsibility for a mortgage, but unlike co-signers, they’re co-owners of the home, too. If you have no credit but your spouse does, for example, this is the route you’ll likely take.

4. Consider seller financing

Banks and lenders aren’t the only ones who can finance a loan. If the seller owns the home outright or has the funds to pay off the remainder of their mortgage at closing, they can offer financing to the buyer directly. Since there’s no mandatory credit check for a seller financing deal, knowing someone who already trusts your ability to repay or who’s willing to use other avenues to assess your creditworthiness is one way to get around being credit-invisible.

5. Buy outright

If you have the cash on hand to purchase a home without going into debt at all, skip the mortgage entirely. Your credit score (or lack of it) doesn’t matter since you’re not taking out any new debt.

4 mortgage options for homebuyers with no credit

Here are a few of the most popular options for mortgages without a credit history requirement:

Conventional loans

A conventional loan is any mortgage that isn’t backed by the government. They’re offered by private lenders like banks and mortgage companies. To qualify for a conventional loan with no credit, you’ll need:

— A debt-to-income ratio (DTI) of less than 36% (DTI compares your monthly debt payments to your monthly income)

— A down payment of at least 10%

— A minimum of 12 months of mortgage payments in cash reserves upon closing

— A private mortgage insurance policy to protect the lender in case you default

Federal Housing Administration (FHA) loans

FHA loans are designed to make homebuying accessible to low-credit applicants, but you can’t be rejected outright for having no credit at all. That said, your chances of approval are slimmer than for applicants with an established credit history.

To qualify for an FHA loan without a credit score, the lender has to hire a credit reporting company to create a non-traditional merged credit report (NTMCR) or perform manual underwriting by looking at your payment record for utilities, rentals, and anything else that demonstrates your ability to manage obligations responsibly.

Veterans Affairs (VA) loans

VA loans are for current and retired members of the military and their surviving spouses. There’s no minimum credit score required, but lenders that offer VA loans may have their own set of requirements you’ll need to satisfy.

You can apply for VA and FHA loans directly through Better. Fill out the entirely online application in as little as 3 minutes, and Better will guide you every step of the way from there.

...in as little as 3 minutes – no credit impact

US Department of Agriculture (USDA) loans

If you live in an eligible rural area and have low to moderate income, USDA might be your best bet for a home loan with no credit check. Since USDA loans are already aimed at nontraditional applicants, you may have an easier time qualifying without an established formal credit history. There’s also no minimum down payment required for a USDA loan, making this a particularly flexible option if you fit the profile.

How to build good credit to qualify for a mortgage

It’s possible to buy a house without credit, but it’s not ideal. Here are some ways to get started building credit so you can land the best terms without the extra red tape:

Open a credit card account

The easiest way to start building credit is to get a credit card. If you’re concerned about making payments or spending responsibly, consider starting with a credit builder card. These have low limits and are easy to qualify for, even with no credit, though the interest rates tend to be higher.

Another option is a secured credit card. With these, you start by making a deposit, which acts as your credit limit. You then use it like a regular credit card and get your deposit back when you close the account.

If you don’t want to get a credit card of your own, becoming an authorized user of a friend or family member’s card lets you use their credit to build your own without the risk.

Always pay your bills on time

The most important part of building credit is avoiding missed payments. Set reminders to avoid being late or use autopay so you don’t have to think about it at all.

Monitor your credit

Once you’ve started working on your credit profile, keep an eye on your reports. If you find any errors, report them to the credit bureaus right away to keep them from negatively affecting your credit score. You can check your credit report for free once a week at AnnualCreditReport.com.

Keep your credit utilization score low

Your credit utilization score is the percentage of your available credit you’re currently using. Keeping it below 30% signals to lenders that you’re not spending beyond your means.

Take the next step with Better

Lacking a traditional credit history doesn’t have to keep you from becoming a homeowner. With options like manual underwriting and government-backed loan programs, snagging your dream home is still well within the realm of possibility, especially if you can demonstrate financial responsibility in other ways.

Better offers FHA loans and VA loans directly through the platform for eligible borrowers. After taking a few minutes to fill out the online application, you could have the funds in your account in as little as one week. 

See how Better can help you take the next step toward owning a home of your own, even with no credit history, in as little as three minutes.

...in as little as 3 minutes – no credit impact