Did you know that it’s possible to get a mortgage in the U.S. even with no credit? Just because you are not a U.S citizen, especially one with no U.S credit history, doesn’t mean homeownership is out of reach for you. As long as you are in the country legally, getting a U.S mortgage with no documents is not completely impossible. However, you might have to put in some extra work in order to convince a lender to give you the loan. We will tell more about this later on so keep on reading if you’re interested. But first:
What does it mean to have no credit?
When you don’t have any credit, it means that you have little or no recent credit history in the U.S to get a credit score. Remember, it’s this credit score lenders use to evaluate your creditworthiness, or lack of it, which could certainly complicate the mortgage application process. Now, given that you are a foreigner, looking to establish your roots in the country, it is expected that you won’t have any credit history. And normally, foreigners are required to wait for a minimum of 3 years to establish a credit history.
So, what happens if you want a home loan?
Like we mention in the beginning, even without a credit history in the United States, you can still get a loan. But what happens is that you will have to undergo manual underwriting, which can be pretty time-consuming, instead of the standard mortgage application process that is pretty straightforward. You might need to provide evidence of your credit history in your home country or any other country where you have a financial history. And while in the U.S, you will have to prove to the lender that you have been paying your bills on time without any delay, or defaulting.
Normally, under standard mortgage underwriting, credit scores act like a ‘shortcut’ as they inform the lender of your creditworthiness without having to go through so many details. But with manual underwriting, a loan officer will have to personally review your documents manually in order to determine whether you can be given the loan. Of course, the term and conditions of mortgages vary from state to state, and also from lender to lender, but one thing that would be constant is that every lender you come across will look at your financial history – and not necessarily credit history – but mostly, your utility bills payments.
You might also be asked to provide evidence of any assets you may have, which includes savings and investments, and even your income – which is also required in a regular automated mortgage application. This will inform the lender of your creditworthiness. Now, due to the time-consuming nature of the manual underwriting process, not so many lenders may want to undertake them. So, you may need to find small local institutions or even online mortgage lenders, who offer manual underwriting.
What are some of the mortgage options available for you?
Conventional mortgages – generally, in a situation where the applicant has an acceptable credit score, he/she will only be required to make a 3% down payment and have an adequate debt-to-income (DTI) ratio to qualify for a conventional home loan. Basically, the DTI ratio tells you the percentage of the applicant’s income that will be directed to debt payment, where a majority of the lenders in the U.S go for 50 percent or less. Now, if the applicant doesn’t have a credit history, even with all the background checks, the lender will need at least a 10% down payment plus a DTI ratio of about 36% and lower. You might also be needed to have deposited money in your bank account for about a year. If your down payment falls below 20% of the property’s purchase price, then the lender might ask to get private mortgage insurance (PMI), which acts as a security to the lender, just in case you default on your loan. But if you were to make enough down payment – that is 20% or more, of the home value – then the PMI will be removed. But in the absence of a credit score, it is very common to find the lender asking you to get a PMI so that they feel safe with lending a mortgage to you.
FHA loans – being a foreigner, you may be looking to finance a rental or even a vacation home. But the thing is, if the house you want to build is a residential home, then you might qualify for a home loan backed by the Federal Housing Administration, commonly referred to as an FHA loan. Basically, these loans are specially designed for prospective home buyers with a poor or no credit history in the U.S, and unable to afford the down payment required to qualify for a conventional loan. Essentially, according to the federal guidelines, the lenders who offer such kind of home loans to clients, including foreigners with no credit score. And since there are quite a number of lenders offering FHA loans in the U.S, select several and compare their rates and borrowing terms. Some may offer better deals than others, and you definitely need to get a better offer. Here are some of the general requirements for anyone looking to get this loan:
- A 3.5% down payment on the property’s value
- A DTI ratio of 31% and lower
- You might be needed to pay the mortgage insurance for the entire duration of the loan, and if your down payment is above 10%, then you will pay the insurance only for 11 years.
- You also need to have enough money in the bank.
As a foreigner, you don’t need to have any form of credit history in order for your home loan application. As long as there are no issues with income or debt and the necessary funds can be provided at time of purchase- then apply! This is because some banks will approve applicants without having established histories just like how they would do for an American citizen. Now, you can hire a local mortgage expert to help you apply for a mortgage, and also tell you more about the options that you have.