By Sabrina Karl
When you apply to a lender for a home mortgage, one of the most important things they consider is your credit score. But what if you don’t have a credit history? Can you still get a mortgage?
Your credit report rates your worthiness to receive new credit by scoring the length of your history with credit cards and loans, along with your pattern of on-time vs. delinquent repayment. But for consumers who have shunned credit cards and who have never taken out a car or home loan, there is little or no information to inform their credit score.
If you’re in this situation and want to buy a home, your path will be a little trickier, or at least more cumbersome. But it’s not impossible to find a mortgage and a lender that will qualify you using nontraditional credit evaluation.
There are two main paths forward for homebuyers without a credit score: apply for an FHA mortgage or find a lender that does “manual underwriting”.
FHA mortgages explicitly allow for applicants who have a thin or non-existent credit file. In lieu of a credit history, FHA underwriting can evaluate your history of paying rent, utility bills, and insurance premiums. It also offers the ability to buy a home with a lower down payment of 5 percent or even less.
But FHA loans come with certain fees in exchange for their easier qualification terms and government backing. So if you have more than a 5 percent down payment available, you may instead want to look for a lender that offers manual underwriting.
These lenders aren’t common, but check smaller banks, online lenders, and local credit unions for this option. And be prepared to provide documentation of 12 months’ payment history for your rent and your utility, phone, and insurance bills.