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    Home » Can You Buy a House With No Credit History?
    Finance

    Can You Buy a House With No Credit History?

    Nurul AminBy Nurul AminAugust 30, 2022Updated:September 1, 2022No Comments5 Mins Read

    Introduction

    Home loans increased by 40% in the December quarter between FY19 and FY22 due to the ease with which home loans were available. 

    In the fiscal year 2021, Indian banks made personal housing loans or mortgage advances totalling Rs. 1.2 billion. 

    Purchasing a house is a significant life decision that demands much consideration.

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    For many people, having a good credit history is a must to qualify for a mortgage or a credit card. 

    Nevertheless, not everyone has a credit history that is reliable enough to qualify for a loan or a mortgage.

    Poor credit history can make getting approved for a mortgage difficult, even if a person can meet the other requirements. 

    Do not give up; it will just take a little more effort. Mortgages can be obtained without a credit report, which is entirely worthwhile. And we will demonstrate just how.

    What is a credit score?

    A credit score is a numerical expression of how likely borrowers are to pay back money borrowed from banks, financial institutions, or creditors.

    The higher the number, the lower risk a person perceives they have of being able to meet their financial obligations. A low score indicates high risk. 

    A credit report includes information about the debt history, payment history, collections, length of credit history, types of accounts, balances, and payments.

    Why the credit score is significant when taking a mortgage? 

    The credit score number represents the risk level of lending money to someone who applies for a loan. 

    For a lender to decide whether they want to lend money to a person, they look at a person’s credit score.

    With a good credit card credit score, applicants may get home loans with more lenient conditions and cheaper interest rates, which can save them money. 

    However, if their credit is not in good standing, their loan or credit card application can be turned down or accepted with unfavourable conditions.

    Can you get a mortgage if you do not have any credit history?

    Yes, it is possible to obtain a mortgage without any credit history. The following options help the cause:

    1. Lenders will verify qualifications and documents 

    Even if the applicant has no credit history, borrowers may still be approved for a home loan. 

    In this scenario, the lenders will apply the traditional criteria to assess if the borrower qualifies for a mortgage.  

    In such cases, the lenders’ most crucial considerations are the applicant’s educational background and employment history. 

    As an illustration, if they are a licenced doctor or a chartered accountant, which guarantees their steady income, lenders may provide loans quickly.

    Moreover, applicants might need to supply the lender with additional documentation to be satisfied that they can and will continue to make their EMI payments on time.

    1. Scrutinise your banking transactions

    The lenders may also ask about one’s recent bank statements to determine ones saving and spending behaviour. 

    The banks may carefully review a person’s financial activities to determine how frequently they pay their utility bills, such as electricity or phone bills. 

    If you are renting a place to live, they may also check your rent payments to see if they are being made on time. 

    Thus, your bank statements are used to determine your spending and saving patterns to extrapolate behaviour for house loan servicing.

    1. Ask for a co-signor 

    Banks want to protect themselves from financial loss if borrowers default on loans. So, they often require that you get someone else to co-sign the loan agreement. 

    Co-signing means asking someone else to guarantee your mortgage payments. 

    It is a great way to build your credit and show a financial institution that you are responsible enough to handle a big responsibility.

    1. Higher interest rates

    If you are looking to take a mortgage and do not have a credit history, you might get a loan but at a higher interest rate. 

    A higher interest rate is charged on loans to mitigate lenders’ risk. 

    1. High down payment 

    A lender takes on less risk by giving a mortgage loan if borrowers agree to put a larger down payment on a property. 

    If they have previously made a significant down payment, the lender will have a higher chance of getting their money back if borrowers default on their loan payments.

    A substantial down payment might increase their chances if their current credit history makes it difficult for them to qualify for a new mortgage.

    Conclusion

    Home loans have become a common source of financing for homeowners. 

    Whether buying a new home or refinancing your existing mortgage, you must always weigh your options carefully.

    As a borrower, you want to get the best deal possible for your mortgage. 

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    This means you must shop around until you find the lowest interest rates and consider essential factors.

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    Nurul Amin

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