A Mortgage Without Credit? Here’s How to Increase Approval Chances

To be approved for the best home loans, mortgage lenders will look at your credit first to ensure that you’re capable of repaying. But if you’re a young aspiring home-buyer who hasn’t built up credit yet, will you even be entertained by lenders or brokers?

Yes, you will, but it may take you a bit of work to achieve your goal of owning a home.

As someone without credit, you’re less likely to qualify for traditional loan programs. But if you have sufficient funds for a down payment, then a conventional mortgage may be suitable for you. However, your monthly payments for a conventional mortgage shouldn’t go over 25% of your net salary.

That said, let’s discuss your options and ways to get approved for a favorable type of loan.

FHA or VA Loans

For applicants without credit, banks may offer a Federal Housing Administration (FHA) loan. This type of mortgage is designed for hopeful home-buyers with little to no credit. But before signing your FHA loan contract, be sure that you’re aware of the other fees associated with it, too.

You may have to pay private mortgage insurance along with your monthly payments. That can increase the original purchase price of the loan by several thousand dollars in the long run.

If you’re a veteran, you may also qualify for a VA loan, which can make home-buying easier for applicants without credit as well.

While considering your options, consult a banker or a mortgage broker to have an expert’s take on your situation. They can help you find a loan provider that’s suitable for you.

Build Up Your Credit

Since having good credit puts you in a better position when applying for a loan, maybe your home-buying plans can wait a bit more. Build up your credit first so that you can qualify for a more cost-efficient loan.

If one of your family members or your significant other has good credit, you can ask their help for building yours, too. You can open a loan account with any of them as a co-signer. Your roles in the loan will be to cover for each other if one happens to miss a bill payment.

You can also be an authorized user on someone else’s account—for instance, a credit card. If you’re an authorized user of your parent’s credit card, you’ll also build up credit as they make credit card payments.

And if you’re interested in obtaining your first credit card, get a starter one. Starter cards have lower credit limits so that you can keep your spending under control.

Business at homeMaximize Income While Paying Debts

Assuming you obtained a credit card, you’ll now be making monthly payments if you use it often. That adds up your expenses and dwindles your savings. But you can still enjoy your money even while paying debts. Having ample savings will help you in your loan application, as it measures your capability to repay.

Credit cards typically have high interest. Hence, focus on paying them off first before saving.

You can also take out a personal loan to pay off your credit card debt. That is another way to build up your credit as well. If you qualify for a personal loan with a low-interest rate, you can use the money to relieve your credit card debt, and then repay the new loan at a lower rate.

Lastly, don’t put your eggs in one basket. Open multiple savings accounts, one for emergencies, one for savings, and another one for spending. You should also consider investments to grow your income even more.

The bottom line is, the more your money moves, the higher your chances will be in getting approved for a suitable mortgage. Just ensure that your savings are higher than your expenses at all times, and you’re good.

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