One of the many ways that home buyers achieve their goal of being able to purchase a home is by becoming debt-free and essentially not bringing in any more debt into their life. Although this is undoubtedly a great way to ensure that you have the funds needed to purchase a home, it can also leave you with almost no credit score to use for obtaining a mortgage. However, not all is lost. Even if you don’t have a credit score, there are various options to ensure that you acquire a home. Read on to learn some helpful tips on just how to accomplish this.
Low & No Credit Score Aren’t The Same
First thing first, having no credit score isn’t the same thing as having a low credit score. Don’t let an inexperienced agent tell you it’s the same because this can drastically affect your mortgage options. Having a low credit score means you’ve made some major mistakes in the past while having no score simply means that you’ve avoided debt. Lenders see this and understand the difference.
Perhaps the most popular option that lenders will recommend for those with no credit score is an FHA loan. An FHA loan is a government-backed loan that makes it easier for people with low and no credit scores to get into a home. The barrier for entry to this type of loan is so low that often the percentage for a down-payment is just 3%. The downside is that it can be extremely expensive. You’re going to pay significantly more on this type of loan than you would with a conventional 15 or 30-year mortgage.
One of the least known methods for obtaining a mortgage without a credit score is through manual underwriting. This essentially means that you agree to an internal investigation of your ability to pay back your debt. The process is not easy, to say the least. You are going to have to present a number of documents proving that you’re responsible and have the financial ability to pay back your loan. Some of the documents needed include utility bills, proof of income, rent payment history, and much more. You will also have to make sure you have enough money for a large down payment, usually at least 20%.