A Multi-Family Home

Having No Credit Isn't Always A Problem When Buying A Home

by Arnold Gomez

If you're thinking about buying a home but are young and don't yet have a long-standing credit history, you still may be able to qualify for a home loan with relatively no credit. Although having no credit is not the same as having bad credit, you can experience similar problems when it comes to applying for new credit like a mortgage loan. But while buying a home with no credit history isn't usually easy, it isn't impossible either.

Payment History

You may not have much of a credit history as far as traditional sources of credit go, but your payment history counts and may be enough to get you the loan you need to finance the purchase of your first home.

Rent and Utilities. If you're renting an apartment and the utilities are billed in your name, as long as you've been paying the utility bills on time each month, you are creating a credit trail. Although not all utility companies report positive payment histories to the major credit bureaus, some do. Having a cell phone plan in your name helps too.

You can use the rental payments you pay your landlord for your apartment or house each month to build your credit as well. There are online data providers with whom you can sign up for an account.

For a monthly fee, these companies contact your landlord each month to verify that you paid the previous month's rent on time. The company then reports your rent payment to a credit bureau such as Transunion or Experian. There also are third-party payment processors that some landlords use to collect rent payments online–payments which then are reported to one of the credit bureaus.

Student loans. Those student loans that you've been paying since you graduated college can help you get your first home loan. Lenders–including those who disburse government-backed student loans–report student loans to the credit bureaus on a monthly basis. Because a student loan is an installment loan of sorts–similar to a mortgage or auto loan–making on-time payments shows a potential mortgage lender that you can manage debt responsibly.

Credit Unions

Besides debt payments that impact your credit, if you are a member of an employer-sponsored credit union, you may qualify for a mortgage loan more easily than if you applied for a loan with a commercial lender. Credit unions tend to be more flexible on credit requirements–including accepting lower credit scores and a shorter credit history.

A small, community bank or an independent mortgage broker also may take the time to qualify you for a loan by collecting the documentation necessary to prove that you have a positive payment history and manually underwrite a mortgage loan.

FHA Home Loans

Applying for an FHA loan to purchase a home is another option if you have no credit history. FHA lenders tend to be more lenient about credit requirements than lenders that finance conventional mortgage loans. Normally, it's easier to qualify for an FHA home loan, even if your credit history is sparse. An FHA lender may accept alternative forms of credit such as rent payments, timely payment of utility bills, and insurance payments as proof of your credit history.

You can show canceled checks or letters from creditors indicating that you've made on-time payments. Letters must include your name, account number, and payment amount.