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Buying a First Home

Is It True You Can Get A Home Mortgage With No Credit Score?

21 September 2020

Irma Bates

Mortgage companies lean heavily on credit scores, so it's understandable when people assume one is needed to purchase a home. Surprisingly, you can get a home mortgage with no credit score whatsoever, but you'll have to meet some special requirements to do so. Here are two that will be asked of you.

You Need to Provide Alternative Sources of Credit History

The mortgage company's primary concern is making sure the loan will be paid every month. A credit report and score make it easy for the lender to determine whether you are a responsible enough bill payer or there is a risk you'll default on the loan. As long as you're able to demonstrate a good payment history in other ways, though, you won't need a traditional credit score.

Instead, the lender will manually underwrite your loan, which involves reviewing your payment history with a list of credit references you submit to them. If you're currently renting an apartment, for example, the mortgage company will ask the landlord for a copy of your rental history.

The lender will tell you which types of accounts they accept for manual underwriting. Though this varies between banks, most will look at the last 12 months of payments. Be aware that lenders tend to be stricter with people who have no credit scores. If you were late on any of your financial obligations, even once, your application may be declined.

You Have to Save More Money

In addition to demanding a good payment history, the bank will typically impose more conditions for approval on people who have no credit score. As noted previously, the lender wants to make sure you won't default on the loan. To that end, you'll be required to have reserves.

Reserves are cash or liquid assets you can access to pay on the loan in times of trouble, such as if you become unemployed unexpectedly. Even people with good credit must have a minimum of 2 months of reserves on hand. However, because you don't have credit, the lender may require you to have more than that (e.g. 6 months of reserves), depending on your financial situation.

Your reserves must come from assets that have been seasoned or sourced, meaning the bank must be able to determine where they came from. Examples of seasoned assets include money from earnings or investments, while sourced assets could be monetary gifts from family.

Regardless of how you build your reserves, the required amount must be in your bank account prior to applying for the loan.

To learn more about qualifying for a mortgage with no credit score, contact a local home mortgage service.

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