You need a good credit score to get the best rates on mortgage loans. Less-than-perfect scores will mean higher interest rates and subprime credit scores will make borrowing money very expensive. But what if you have no credit score at all? Is it possible to get a mortgage without a credit score?
The Credit Score-free Population
According to the Consumer Financial Protection Bureau (CFPB), there are approximately 26 million American adults without a credit history and another 19 million whose credit histories are too outdated or limited to be scored with the traditional methods by the credit bureaus. That accounts for 18% of the U.S. adult population.
Some of those without credit scores are recent immigrants who have not yet established credit in the U.S. Others have chosen to use cash for purchases, instead of credit cards and other loans. Still others are the younger and have not had enough experience with credit to have a score. And some people may have open credit card accounts but have not used them for so long, that there is no longer any relevant data to score. Whatever your reason for not having a credit score, there may still be ways for you to qualify for a mortgage.
Qualifying without a Score
If you have a nontraditional credit history, you still may be able to qualify for an FHA home loan. This government-backed mortgage program allows lenders to use other documentation to verify your creditworthiness.
You will need to provide at least 12 months’ worth of payment information for rental payments. In addition, you should provide as much documentation as you can on things like your monthly utility payments and car or renter insurance. You could also include payment history for your cell phone bills, internet/cable bills, school tuition, or childcare payments.
In order to be seriously considered, all these accounts need to show that you have been consistently on time with your payments and that you are not in collections for any debt. Lenders will also look closely at your debt-to-income ratio. Your debt should definitely be lower than 50% of your income. The lower the better. You will also be required to have enough cash reserves on hand so that after you close on your mortgage, you will still be able to pay for one month of mortgage payment in addition to your other expenses.
Finding the Right Lender
Even if you have a stellar nontraditional credit history, not all lenders will be willing to work with you. Processing all that paperwork requires manual underwriting and some lenders will not consider it worth the effort.
While it may require a little more work, if you have a history of timely payments, you may still be able to obtain a home loan. Coupled with little or no debt and a good pile of savings, you can show lenders that you are a responsible borrower, ready to take on a mortgage.
Call us today at 413-737-1100 to discuss all of the mortgage options that are available to you.