FHA Discussion

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FHA Loan with No Credit – 2020 Guidelines

FHA Loan with No Credit

fha loan with no credit

FHA loans have specific credit requirements and guidelines that FHA lenders must follow while processing and underwriting the mortgage application. Although the FHA credit requirements are strict, you can get an FHA loan with no credit score. In fact, HUD forbids lenders from declining a borrower’s FHA loan application simply because they lack a credit history.

Can I get an FHA Loan with No Credit?
You can get an FHA loan with no credit because FHA guidelines require lenders to use other means to determine a borrower’s ability to repay the loan when there is no credit history available through the traditional credit reporting agencies.

Complete this simple loan scenario form to speak with someone about your options and for a rate quote.

Standard FHA Credit Requirements  fha loan with no credit

If you think you may have a credit score, then the FHA credit score requirements are as follows:

  • Minimum Credit Score of 580 = Down Payment of 3.5%
  • Credit Score of 500-579 = Down Payment of 10%

If you are not sure what your credit score is, then one of our FHA lenders can discuss your options and alternative means to qualify. You can also read our article on the FHA credit requirements for more information. If you have no credit at all, continue reading below.

Qualifying for an FHA Loan with No Credit

When there is no credit history available or credit scores from the three credit reporting agencies, HUD requires FHA lenders to find other ways to determine your credit worthiness. Your lender will ask for documentation from other services and creditors who traditionally do not report your payment history to the credit agencies. These are just a few examples of what you may be asked to provide:

  • Letter from your landlord documenting the on time rent payments
  • Payment history for your utility companies (gas, electric, water, etc)
  • Payment history for your cell phone or internet provider
  • Payment history for your homeowner’s insurance
  • Payment history for your property taxes
  • Payment history for your automobile insurance

These are the primary examples of what the FHA lender would ask to see and this is often referred to as “non-traditional credit”. They may not ask for all of these but the more you can provide, the better it will be for your application review.

Once these documents are received by your lender, your loan application will go through a manual underwriting process. In most instances, the loan applications are reviewed by an automated system that issues an approval, denial or review by an underwriter.

Manual underwriting is when the compensating factors and additional documentation you provided will be reviewed to determine whether you qualify.

*Note, the lender may be required to go directly to the companies referenced above for the documentation they need.

Down Payment for an FHA Loan with No Credit

The down payment requirement of 3.5% will be the same even if you do not have a recorded credit score. In fact, it is better to have no credit and go through the manual underwriting process than it is to have poor credit.

Documents Needed to Qualify for an FHA Loan with No Credit

When applying for an FHA loan with no credit, you will still need to provide the required documentation for any FHA loan.

  • Social security number or card
  • Driver’s license or some other form of ID
  • Pay stubs and W2s (for wage earners)
  • Tax returns (for wage earners and self-employed borrowers)
  • Bank Statements
  • Account statements for any other liquid financial accounts
  • 1003 loan application
  • Form HUD-92900-A – this is an addendum to the 1003 loan application
  • Written verification of employment
  • Alternative Credit Documentation as outlined above
  • Appraisal Report
  • Sales contract for purchases
  • Copy of the deed for refinances

Read our article on all of the FHA loan requirements to see what else you need to know about qualifying.

Why is Your Credit Score Important for an FHA Loan?
The credit score is the primary factor lenders look at when determining the risk associated with the loan. As the credit score worsens, lenders look to offset that risk by increasing the interest rate or asking for a higher down payment. Therefore, a low credit score will likely cost you thousands of dollars in additional interest payments over the life of your loan.

Are there no credit check FHA loans?
FHA lenders are required to check your credit with the credit reporting agencies or manually review your credit history when credit scores are unavailable. Lenders will to go through this credit check process for every FHA loan with no exceptions.

What is the lowest score the FHA will accept?
The lowest credit score allowable for an FHA loan per HUD guidelines is 500.

Where can I find a lender for an FHA Loan with no credit?
Not all lenders are the same when it comes to FHA loans. However, most should have the ability and willingness to manually underwrite your mortgage application if you do not have a traditional credit score.

Related FHA Resources and Articles

How to Build Credit Fast – This article details how to build your credit quickly when you are in the midst of shopping for a home and need to qualify for your mortgage immediately.

What is Credit Karma? – Have you ever wondered what Credit Karma is and whether using it is worth the trouble? Learn  what those Credit Karma commercials are all about in this article.

Finding an FHA loan with bad credit – The article you just read talked about how to qualify for an FHA loan with no credit. However, this article will let you know how to get an FHA loan with bad credit.

How to get pre-approved for an FHA loan – If you need a pre-approval letter to begin shopping for a home, this article will tell you everything you need to know about securing that pre-approval.

How to get an FHA loan with no out of pocket funds – We often get asked whether you can get an FHA loan with zero down. Although FHA guidelines require a down payment, you can get the loan without any out of pocket funds.

FHA down payment assistance – There are many FHA down payment assistance programs out there in every state. Find out which ones are available to you and how to get them.

FHA loan without a 2 year work history – Most people believe it is impossible to get an FHA  loan without a 2 year work history. However, you can get approved even if you have not been working for the past two years consistently.

 

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