Having no credit is more common than you may realize. Around 45 million Americans have no credit score. If you have never had a credit card or taken out a car loan or mortgage, you may have no credit score. Those who have had credit cards and loans in the past may also have trouble if they have completely paid off their debt and haven't had any new loans or used a credit card in recent years. If you are thinking about buying a home, having no credit is a hurdle you will have to clear before getting a mortgage. Here are three tips for buying a house when you have no credit.
Be Prepared with a Payment History
While you may not have a credit history available, there's a good chance that you have spent some time renting and paying utilities. Having a payment history on hand can come in handy for those with no credit when attempting to obtain a home loan. Gathering documents that show that you have a history of paying your bills on time and showing them to potential lenders may help make your case when there is no traditional credit score available.
The good news for those who are looking to purchase a home with no credit is that there are lenders who will offer no credit financing. Loans backed by the Federal Housing Administration (FHA) are easier for those with no credit to obtain. You may also want to look into local banks and credit unions. They may be more willing to work with those who have no traditional credit history. Shopping around will make it much more likely that you find a home loan.
Take Steps to Build Your Credit
If you are unable to find no-credit financing, taking steps to build your credit is a necessity. A few things that you can do include applying for a secured credit card or become an authorized user on a loved one's or close friend's credit card. Taking out a small loan, like a personal loan, can also help you build your credit faster. Within three to six months, you will have a credit score if you take steps to build credit. Once you have a traditional credit score, qualifying for a home loan will be easier.
Buying a home with no credit history can be difficult but it's not impossible. If you want to purchase a home but have no credit history, there are a few things that you can do. First, preparing a payment history is a must since some lenders will accept this in place of a traditional credit history. Shopping around and look for lenders who offer no-credit financing is also a good strategy. You'll also want to take steps to build your credit. Within three to six months, you'll have a credit score available.