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You're ready to buy a house. You've saved or started saving up a basic downpayment. You've begun looking at houses on the market and have already fallen in love with two or three affordable little fixer-uppers. There's just one problem: No one will give you a mortgage because you have little to no credit score.
You're not alone. This situation happens to thousands of people every day. It happens to both people who have no credit score and those who have a bad credit score for reasons in the past. You're ready to be financially responsible now. You're ready for a mortgage now, but the lenders won't lend because the one number they care about most isn't in the right "Zone" for a mortgage. At this point, you can't help but ask the question:
"Can someone with low credit or no credit really purchase a home?"
Quick Answer: Yes, With Some Preparation Don't give up hope just yet. The answer is yes. There is no law stopping you from purchasing a home or even getting a mortgage to do so. But there are a few hoops you have to jump through first. Whether you have zero credit history or a bad credit history, homeownership isn't out of reach. But it may take as much as two years of preparation to get there.
Fortunately, two years for most people is a reasonable amount of time to prepare for homeownership, and you can speed up that process in many cases by throwing yourself into the right tasks and practices. Let's take a closer look at your options.
Buying in Cash
While most of this article will focus on getting a mortgage, it's worth mentioning that sellers will happily sell to you directly without a mortgage. So if you have saved up enough to buy a little starter home in a financially depressed housing market, you can buy a home outright in cash. A small slice of the un-credited population choose to go this route for the same reason you don't have a credit score: Because you don't like being in debt.
FHA Loans
If this is your first home purchase, and you have enough for a downpayment then your best bet is an FHA loan. FHA stands for Federal Housing Administration, which means the loan is backed by the government to reduces risk for the lenders. Lenders like reduced risk when dealing with no/low credit homebuyers because credit score is usually how they judge financial reliability.
To get an FHA loan, there are two basic qualifications.
1. Minimum Basic Credit Score of 580
First, you need a basic credit score of 580, which is much lower than most mortgage requirements. If you have no credit, don't worry. A basic credit score can be measured with a strong on-time payment history of bills and utilities.
2. Two Years of Verified Employment
You also need to have verified, continuous employment for the last two years. This is usually proven with your most recent two years of income tax form filings.
Having no credit or low credit can seem like it's keeping you from buying a house. But there are still avenues you can take. For those without much credit history, at most you will need two years of tax-filed employment and reliable financial decisions. Plus a few safe credit-building techniques. For those with damaged credit, focus on good financial decisions now and look into ways to resolve, defer, and pay off your past debts along the way.
Soon, you'll qualify for an FHA first-time homeowner's mortgage. That is, if you don't already. Contact your local loan officer to find out more about how to buy a home with little to no credit.