Mortgage Advice

How to Obtain a Mortgage Loan With Little to No Credit

January 25, 2013

One of the many factors lenders use to determine if one is eligible for a mortgage loan is credit scores. Most mortgage lenders require applicants to have a credit score of at least 620, and while it can be difficult to obtain a mortgage loan without a credit score, there are alternative ways potential homebuyers can prove their creditworthiness.

Traditionally, credit is established once individuals obtain a job and earn enough income to pay back outstanding debts, apply for credit cards or take out car loans. If you’re struggling to secure credit through traditional means, you can try applying for a secured credit card. Unlike regular credit cards, secured credit cards require that individuals deposit cash as collateral that then becomes their credit limit for that account.

For example, if you were to deposit $750 into the account, you’d be able to charge up to $750 in purchases. Over time, you may be able to increase the amount of money that is deposited or the bank may even reward you for consistently paying back your debts on time and add to your credit line without requiring you to make additional deposits.

If you’re opposed to using credit cards, new to the country or just starting to build credit, you can use these unconventional sources to obtain a mortgage loan with little to no credit:

  • Utility bills that are paid separate from your monthly rent.
  • Phone and/or cable bills.
  • Childcare payments.
  • Proof of 12 to 24 months of on-time rent payments.
  • Insurance payments that are not deducted from payroll such as car insurance, medical insurance, renter’s insurance or even life insurance.

This, however, is not an all-inclusive list. If you’re new to the country, you can provide credit reports from your home country to create a record of bill payments. If you are a young borrower who has yet to establish their credit history, talk to your parents about having them add you as an authorized user on their credit card accounts. You’ll benefit from having their long history of credit transfer to your credit report, while they can monitor your spending activity and give you guidance.

In addition to providing alternative sources of information to prove your creditworthiness, there are other things you can do to offset your credit risk. Having a bigger down payment, a low debt-to-income ratio and a stable employment history can all increase a buyer’s ability to obtain a mortgage loan.

If you have thin credit and are interested in purchasing a home, call us at 800.521.5362 and our lenders will work with you to build an action plan you can follow to improve your chances of qualifying for a mortgage loan. 

Photo credit