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No Credit Home Loan - Options and Requirements for No Credit Home Loans

Lenders, Borrowers, and the Federal Housing Association

fha lenders history borrower

Though building good credit is a route to getting the most competitive mortgage rates, a homebuyer can obtain a no credit home loan through certain avenues. A type of loan called an FHA Insured Loan is the most expedient way to purchase a home with no credit history.

During the Great Depression, the United States’ attempts to revitalize their economy had put lenders and borrowers at odds. The borrowers, who had no money, wanted to receive credit to purchase homes. The lenders, who had already lost money, did not want to lend to people with no credit history. In 1934, the United States established the Federal Housing Association, a body designed to support lower income home purchases by vouching for American citizens to their potential lenders.

In essence, the United States government vouches for a borrower of a no credit home loan. The FHA promises lenders that, should the borrower default on the loan, then the government is willing to be held liable.

These FHA loans are the main source of no credit home loans. A terrible credit history or a high ratio of debt to income can result in rejection, but borrowers with no credit whatsoever have ready access to these loans.

The maximum value of FHA loans are determined largely by a conservative estimate of local housing prices. The FHA signs for relatively inexpensive homes, protecting taxpayer support by limiting the potential damage of a defaulted loan.

FHA lenders require some proof of financial responsibility before extending credit. In the case of no credit home loans, this can come in a variety of forms. One year’s worth of a regular payment—utilities, insurance, day care, etc.—will prove the borrower’s worth to the lender enough to qualify for a no credit home loan through the FHA.

In addition to repayment, a borrower of an FHA loan must also pay into a robust lender’s mortgage insurance, a safety measure put in place by lenders and the FHA that further insulates lenders from the possibility of default. These payments—usually another $50 or more per month—can make the monthly cost of an FHA loan higher than those of a more conventional loan.

Alternative to FHA loans, no credit borrowers can attempt the same conversation to a standard bank. Armed with similar information of regular payments, a borrower of a non-FHA no credit home loan can bolster their negotiations with a pre-existing relationship with the bank in question or collateral in the form of collections, vehicles, or other valuables.

Thanks to the FHA, home loans remain an option to those with no credit history. Certain banks may be willing to extend credit as well, and in either case, such a negotiation requires evidence beyond that of credit score to demonstrate a certain level of financial responsibility. These loans are not the most competitive, but with no credit history to begin from, they are an option which many first-time homebuyers are glad to have.

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