May 9, 2022
Is there such a thing as a no-credit-check FHA loan? There are zero-down payment home loan options offered by the Department of Veterans Affairs and USDA, is there a similar type of loan for those who don’t want a credit check?
When it comes to purchase loans, FHA mortgages require a credit check, employment verification, and other financial information to approve or deny the loan. You won’t find a home loan issued by a traditional lender that has no credit pull.
That does not mean you cannot purchase property without undergoing a credit check. A 100% cash transaction between borrower and seller would technically not require one unless some kind of credit was needed.
And depending on the state where you live, community property laws may or may not require a credit check of a spouse.
And for any refinance loan where cash goes back to the borrower, such as an FHA Cash-Out Refinance, a credit check is required as well as an appraisal.
The credit check is to ensure the borrower can afford the new loan (don’t forget that with a Cash-Out refinance loan the amount you apply for may require a higher mortgage payment than you are making now depending on circumstances) as well as to ensure the home’s current fair market value informs the new loan amount.
At this stage in the article, you are likely wondering why we bothered discussing this issue as it seems there are no home loan options that permit you to apply without a credit check. But that is not entirely true.
There is one FHA loan product that does not have an FHA-required credit check or appraisal. That product is a refinance loan for existing FHA mortgages called the FHA Streamline Refinance loan.
This is a loan that may only refinance existing FHA mortgage loans and typically must also feature some form of a benefit to the borrower such as a lower monthly payment, getting out of an adjustable-rate mortgage, or getting a lower interest rate.
FHA Streamline Refinance loans do require a credit check according to the FHA loan rules if add-ons to the loans like allowable closing costs or an FHA Energy-Efficient Mortgage package are included.
It’s not automatic, but in general, if the add-ons raise the monthly payment too much the lender may be required to certify that you can afford the new mortgage.
As you can guess from the above, FHA Streamline Refinances do not have a provision for non-FHA mortgages. Another government mortgage program run by the Department of Veterans Affairs has a similar Streamline option with the same restrictions.
VA Streamline Refinance loans can’t be used to refinance any mortgage but an existing VA home loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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