Sincerely N. O. Fico,
$ ?s answered by Matthew Illian, CFP®
Dear N. O. Fico,
Yes, you can buy a house without a credit history and it’s called paying with cash. I have strong feelings about our personal and governmental assumed reliance on debt. I digress. Many readers lack the capital to pay in cash and want to know if it’s possible to take out a mortgage to finance the purchase of a house without a credit history.
In the American preoccupation with debt, many have forgotten how our ancestors ever got along without a credit score. And I don’t expect this situation to change much as long as profits at companies such as Fair Isaac Corporation, founders of the FICO score, rely on maintaining this preoccupation. Although it is possible, buying a house without a credit history will require you to jump through some uncommon hoops to find a competitive rate.
You will need to start by identifying a mortgage company that offers flexible manual underwriting. This approach looks more like the old-time methods bankers used before lending came to look like an assembly line. When lenders can’t rely on a FICO score, you should expect to put a 20% to 35% down payment on the house purchase. You will also be expected to demonstrate that you consistently paid your monthly bills over the last two years. Most will also want to see that you have a stable employment history and personal income to support the loan.
For this type of loan, you are more likely to get a customized review at a local independent bank or a regional bank that specializes in manual underwriting. And you should expect to check with several banks before you find one that can offer the most competitive rates.
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