Home Loans With No Credit Mortgage Guidelines

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This guide covers applying for and getting approved for home loans with no credit.  We have covered many blogs on how to get loans with bad credit, fair credit, and good credit, and blog topics on how to re-establish credit with a bad credit payment history. Gustan Cho Associates Mortgage Group has no lender overlays on government and conventional loans.

Many of our viewers of Gustan Cho Associates are inquiring about advice on applying for a home loan with no credit history. Many homebuyers are told they do not qualify for home loans with no credit.

Homebuyers who do not have an established credit payment history. Or a credit score on their credit report can qualify for home loans with no credit. This article will discuss qualifying for a mortgage with little to no credit tradelines. In the following paragraphs, we will cover qualifying for home loans with no credit.

Can Homebuyers Qualify For Home Loans With No Credit

Those who already have established credit normally have no issues getting new credit. Even those who have bad credit and a lower credit score can get credit since they have a prior credit history on their credit report. Homebuyers can qualify for a mortgage loan even if they have prior bad credit.

Borrowers do not have to pay outstanding collection accounts and charge off accounts to qualify for FHA loans. However, those who never had any credit will have difficulty getting new credit if they do not have a single credit tradeline or credit score.

Homebuyers can qualify for home loans with no credit. Sometimes having poor credit is better than having no credit. Many folks are super conservative. They never applied for credit just. This is because they did not want any debts and did not want to extend themselves, and they only believed in buying goods and services with cash. Unfortunately, these consumers get penalized when applying for home loans with no credit or other types of loans.

Consumers With No Credit Tradelines

Many young consumers and immigrants are consumers who have no credit. Many consumers have filed for bankruptcy, went through foreclosure/short sale, or are older Americans who retired their old debt. They did not incur any more debt and closed out their credit card and other revolving accounts. These consumers paid off all of their installment accounts. They had no active credit activities on their credit reports for years. Due to no recent credit history, they may no longer have a credit score.

Qualifying For a Mortgage With No Credit

The good news is that there are ways to apply for home loans with no credit. Consumers can use non-traditional credit tradelines to qualify for a mortgage. Nobody was born with any credit. We all had to start developing credit at one time or another. Getting credit with no credit is doable. We will advise you on applying for loans with no credit on this blog—asking a close friend or family member to co-sign for a new loan. Cosigning, such as an auto loan or other installment loans, will help establish credit with new credit.

Get three to five secured credit cards with at least a $500 credit limit for maximum effect. Secured credit cards are the easiest and fastest way of establishing credit and a credit score for those without credit or bad credit history.

There is no one-way process or system on how to apply for home loans with no credit. Some types of loans may require many more hurdles and challenges to get approved without prior credit than other loans. The best advice for every consumer is to start developing a credit history as soon as possible if they do not have any credit.

Establish a Credit History To Qualify For Home Loans With No Credit

For consumers with no credit, the best advice I can give is to start establishing your credit by getting new credit. It will be difficult for you to get any credit without a credit history on your credit report. The three fastest and easiest ways of establishing and building credit is to ask a close friend or a family member who has good credit to be added as an authorized credit card user.

The borrowers should as a family who has credit cards that have always been had a timely payment history with a very low credit card balance to be added as a credit card authorized user.

Remember that adding on someone’s credit card as an authorized credit user is ONLY EFFECTIVE if and only if with the main user of the credit card has had a perfect timely payment history and has a low credit card balance.  If the main user of the credit card has maxed out credit cards or has been late on their credit card payment history, it will hurt more than help.

How Do Lenders View Borrowers For Home Loans With No Credit?

Creditors and lenders lend money and extend credit to consumers and borrowers instead of getting a return on the money they lend via interest. All creditors and lenders want to lend or extend credit.  Mortgage lenders want to ensure they get their principal and interest back. Nobody has a crystal ball. However, previous payment patterns and behaviors are a good indication of future performance. A person’s credit report is exactly that. A consumer credit report will show all of the consumer’s credit payment history for the past seven years, including the following:

• late payments
• collection accounts
• charge off accounts
• outstanding debts
• amount of revolving debt available
• amount of installment loans that have been paid, as well as active loans
• all public records, such as foreclosures, bankruptcies, and judgments

The credit bureaus have ways of analyzing a consumer’s overall payment history, debts, types of debts, derogatories, and other financial/credit factors and coming up with a consumer’s credit score. Creditors and lenders base a consumer’s credit score and payment history when extending credit. The lower the credit score, the higher the interest rate

Determining Credit Worthiness of Borrowers

Mortgage and auto lenders consider the four C’s when extending credit. The four C’s in lending are the following:

1. Credit
2. Capacity
3. Collateral
4. Character

How Lenders Extend Credit To Borrowers

Getting a personal loan with no credit and collateral is very difficult. All lenders want to collect on the loans they fund. Home lenders do not want the house. They want borrowers to make good on their mortgage payments. The best assurance lenders have that they will get their money and have creditworthy borrowers is by reviewing the borrower’s prior payment history. However, prior credit payment history does not guarantee that borrowers will be good-paying. It is a good reflection on the character of borrowers.

Qualification Requirements For Home Loans With No Credit

Mortgage lenders require a minimum credit score for a home buyer to qualify for a mortgage. Applying for a home loan with no credit is doable with non-traditional credit tradelines. If a borrower has a time when the loan officer can help the borrower get credit, that will be the easiest way to prepare for home loans with no credit.

Once a few credit tradelines are on the borrower’s credit report, the borrower will have a credit score. They can apply for a mortgage rather than submit a mortgage file where the borrower has no credit or credit score.

Those who need home loans with no credit may run into hurdles and challenges from other lenders. It will most likely be downgraded to a manual underwrite. The underwriter will ask for many documents, such as verification of rent, non-traditional credit tradelines, and compensating factors.

What Are Non-Traditional Credit Tradelines?

Non-Traditional credit tradelines are creditors with whom borrowers have a payment agreement for goods and services that do not report on consumer credit reports. HUD allows non-traditional credit tradelines to be used instead of traditional credit tradelines.

Traditional credit tradelines are creditors and lenders that report the borrower’s payment history to credit reporting agencies. Traditional tradelines are reported on consumers’ credit reports.

Timely payment in the past 12 months is necessary for a borrower to use non-traditional credit tradelines instead of a traditional credit tradeline.

Example of Non-traditional Credit Tradelines

Below are examples of non-traditional credit tradelines that can be used to qualify for an FHA Loan:

• Gas Payments
• Verification of Rent
• Electric Payments
• Water And Sewer Payments
• Land-Line Telephone
• Cable Television and Satellite Dish
• Auto or Equipment Leases Not Reporting on Credit Report
• Personal Loans
• Insurance Premiums
• Child Care Expenses That Is Paid Monthly For at Least 12 Months
• School Tuition
• Rent-To-Own Stores
• Cell Phone Payments