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Can You Buy A House With Bad Credi?

Reviewed by: David Naimey

Approved by: Chad Turner

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We live in an age now where it can be easy to think that you cannot do anything without a credit history. From buying cars, buying homes, to having a friend lend you a pencil, you need proof that you are credit-worthy. And most of the time, it seems like people won’t even lend you a pencil without references. Fortunately, buying a home is not one of those items. You can actually get a home loan without having a credit history at all. While it’s not often that it’s done, certain lenders will work with you to solidify your case that you are someone who will make your payments. However, buying a house with no discernible credit history does have its caveats. This will usually come at the cost of usually higher interest rates, but it is still possible. Just like with having low credit, we highly suggest that you take the time to build your credit to avoid a larger down payment and minimize your amount of debt. However, if you are willing to handle those negatives, you can still buy a house with no credit.

What Mortgage Lenders Will Look For

Mortgage lenders all have criteria that they will look for when trying to prove the case that you would be a trustworthy borrower. We use this analogy a lot, but you are basically in a courtroom proving to a judge (the underwriter) that you’re responsible enough to be a credible borrower (innocent). If the judge finds you guilty, this means that your application would be denied. Now some of the evidence you can present to help prove that you are able to be a responsible borrower can be through the use of alternative trades. Alternative trades, or alt trades, in the mortgage world means alternative either lines of credit or proof of payments.

Rent Payments Can Be Used As An Alt Trade

One alternative trade that is always used if possible is rent payments. If your monthly rent is going to be similar to your mortgage payment or was actually higher than your mortgage payment, and you’ve paid every month on time, this is will be a huge boost to your chances of obtaining a mortgage. Typically, the underwriter will ask you to prove that you’ve been on time with rent payments for the last 12 months. However, if you’ve had any late or missed rent payments, this can greatly hurt your chances of obtaining the loan. If you have been living rent free, it may still be possible to obtain a loan but it will be considerably harder. If this is the case, we highly recommend trying to establish credit as soon as possible to increase your chances of buying a home

Utility Payments Also Count As An Alt Trade

In addition to using rent payments, you can use utility payments to support your case that you are trustworthy. Usually in this case, the underwriter requires two forms of alt trades. You can submit 12 months of electricity bill payments and 12 months of internet and cable payments to easily satisfy this condition. Once again, because you have no credit history, any late payments can greatly hurt your chances of obtaining the loan
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