Home > Mortgages > What Does it Take to Buy a Home Without Credit?

Comments 0 Comments

Having bad or no credit can be a huge obstacle in many situations, perhaps none more difficult than when you’re trying to buy a home. In fact, homeownership can be one of the biggest reasons people set out to build good credit to begin with. But, while establishing a strong credit history is the most common route to homeownership, it’s not the only way there.

Like anything else, you can buy a home with cash. In 2015, all-cash transactions made up 30.1% of single-family home and condo purchases (down from a peak of 36.3% in 2012), according to real estate data company RealtyTrac. Someone may want to buy a home using cash for many reasons, but if you have bad or no credit, it’s probably your only option.

The Pros & Cons of Paying Cash

“Some people have terrible credit and they’re afraid they won’t qualify for a mortgage,” said Diane Saatchi, a senior broker with Saunders & Associates, a real estate company in the Hamptons. Then there are the cash buyers who don’t want to deal with the credit world. “They don’t want to be subjected to the scrutiny of a bank. … They like to live under the radar.”

Even if you live in a very inexpensive part of the country, buying a home with cash requires saving a lot of money — or making a lot of money. The median home sale price in the U.S. is $183,500, according to real estate data company Zillow, but a home priced well below that would still require a person to have significant resources to buy it without a loan.

“If you’re paying $100,000 cash, you’ve either saved for a very long time or you’re coming from some money,” said Doris Phillips, chief operating officer of Lake Homes Realty and a real estate broker in Alabama and Georgia. Oftentimes, people who buy homes in cash are purchasing luxury or secondary homes, she said.

Beyond the fact that buying a home in cash doesn’t require you to have good (or any) credit, it can save time and money.

“A lot of times [in] cash deals there’s only one Realtor involved, so you can really negotiate down the commission,” Phillips said. Closing costs tend to be much lower, as well. “You don’t have to have mortgage insurance, you’re not paying mortgage tax, you’re not paying lenders’ costs and underwriters’ costs, you’re not paying points to the lender.” She said a cash purchase could take about five days from start to finish, rather than the several weeks that a mortgage requires. As far as logistics go, you sign a handful of documents and wire the money from your bank account to the title company.

Cash-Only Offers Trump All?

Cash purchases certainly have disadvantages, though. You can get a tax deduction for paying mortgage interest, and interest rates are very low right now, so borrowing is relatively cheap and allows you to do something else with all that cash. And cash offers aren’t always going to win a bidding war. It really depends on the seller.

“We go up against cash buyers all the time and a common theme with those people is that [they think] they’re better than everybody,” said Scott Sheldon, a senior loan officer with Sonoma County Mortgages in California. “They tend to be very low-ball oriented offers that we tend to beat out regularly.”

On the other hand, it’s low-risk for the seller.

“A cash deal is pretty much a sure deal,” Phillips said. “Mortgages can fall through the crack with one simple thing.”

If you’re not in a position to buy property with cash but still want to be a homeowner, you can focus on building a good credit score while saving for the purchase. Smart credit use, like making payments on time and spending very little of the available credit on your credit cards, will help you improve your credit scores over time. You can learn more about fixing your credit here and track your progress by getting two of your credit scores for free every month on Credit.com.

More on Mortgages & Homebuying:

Image: monkeybusinessimages

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team