When you decide to purchase a home, one of the most important things to consider is how to finance your purchase. Buying a home is an exciting investment that requires a lot of funds and for most people, the most practical way to source those funds is through a mortgage. To qualify for a mortgage, you need to show lenders that you are worth the risk and the way you do it is by proving sound financial health with a credit history. However, is it possible to buy a home without a credit score? In this blog, we will look at why lenders require a credit score and the possibility of buying a home without one.
What is a Credit Score?
A credit score is a number between 300 and 900 which indicates borrowing risk. It tells lenders your likelihood of managing your finances and paying your bills on time. Your credit score is taken from your credit report which shows the number and types of accounts you have open, your available credit, and your payment history. Missed bill payments or delinquent accounts could negatively impact your credit score. You can check your credit history score from a Credit Bureau.
The Importance of a Credit Score in Securing a Mortgage
While no fixed number guarantees your approval for a mortgage or a loan, lenders tend to favour borrowers who have a higher credit score, by offering better interest rates. With a good credit score, you have a history of making bill payments on time, and that proves to lenders that you will repay your loans. risk. A credit score above 720 is considered excellent and gets you good loan rates.
Can you buy a home without a credit score?
Yes, it is possible to buy a home without a credit score. If you don’t have a credit history, you may be able to buy a home through one of these options:
1. Paying in Cash: The purpose of a credit score is to prove that you are likely to repay your debt. The easiest way to bypass this requirement is to pay for your home in full.
2. Getting a Co-signer: If you do not have a credit history, you can get someone close to you to co-sign your mortgage. This person would use their assets as collateral to secure the loan. If you default on your payments, your co-signer will be legally responsible for paying your debt.
3. Manual Underwriting: While a credit report is the preferred way for proving financial responsibility, a lender can examine your financial history, income, and assets to determine your eligibility for a loan. You will need to provide documents that prove your employment history, residential history and bill payments history like utility payments.
Buying a home without a credit score is possible, but it may be more challenging if you are looking to finance a home. It’s important to explore all of your options. Our mortgage experts can help you determine the best course of action for your unique financial situation. Contact us today.