Can You Buy a Home in NYC Without a Credit Check?

Are you wondering whether you can buy a home in New York City sans a credit check? Well, the answer is a bit tricky. While some segments of the home-buying process can be accomplished without credit scrutiny, it's not completely avoidable – unless you are paying with cold, hard cash.

Buying a Home Without a Credit Check

• You may not want your credit checked if your score is bad or you have no credit.
• Purchasing a home without a credit check is possible in New York if you buy in cash.
• Applying for a mortgage will require your credit to be pulled
• Buying an apartment in a co-op and a condo will require a credit check, even if you're buying all cash unless you buy directly from a sponsor.
• Even if you have cash to buy a property, taking a mortgage helps you stay more liquid.
• If you have poor credit, there are still opportunities to take out a mortgage with FHA or VA loan programs.
• Depending on the reasons your credit is poor, you can take steps to improve it quickly.

Reasons Why You Don't Want Your Credit Checked

We all face having our credit pulled now and then, depending on our financial decisions.

Our credit report gets pulled every time we need financing for things like expensive electronics like smartphones, TVs, laptops, or appliances and vehicles like cars, boats, and motorcycles.

It gets pulled when we apply for credit cards.

It also gets checked when we rent a new apartment or home or apply for a mortgage. Some jobs even require that your credit get checked.

However, there are some simple reasons why you might want to avoid pulling your credit.

You have a poor credit score.

A less-than-great credit score is not as uncommon as you think. According to FICO, about 43% of Americans score less than 700, with 30% below 600.

A poor credit score can be considered anything below 580.

580-649 is considered "fair," but it still may not qualify you for an apartment rental in New York City, although it would not exclude you from a mortgage, albeit with high interest rates.

Negative remarks on your report can also prevent you from pursuing your goal.

You have no credit.

If you have never started a credit history, this will exclude you from participating in any financing opportunities, probably subject you to guarantors and paying for everything in cash.

One in five American adults do not have any credit history, and almost just as many have poor or limited credit histories, bringing the number of "credit invisible" to about half of all adults in America.

You filed for bankruptcy.

This may be very close to having a bad credit score because this usually results in your credit score dropping dramatically.

However, unlike having bad credit for several reasons, bankruptcy can bind you for 5 to 7 years, depending on the chapter you filed.

After some time, your credit score may improve, but the bankruptcy filing itself will remain on your report for all to see until it finally gets cycled out.

You might want to avoid a whole inquisition or being flat-out rejected, as you will undoubtedly come up with a bankruptcy on your history.

You've had too many inquiries.

Having your credit pulled too often in a given period will lower your credit score. Each pull will weigh your score down lower and lower.

Too many inquiries may make a creditor looking at your report dubious of how you're handling your finances.

While too many inquiries won't be as detrimental as having multiple late payments, it can be a meaningful difference to someone whose score is right on the cusp of good and fair or fair and poor.

You're afraid of identity theft.

If you've been a fraud or identity theft victim, you may feel very hesitant about letting anyone pull your credit.

After all, your report is full of sensitive and personal information that can harm or ruin your life.

Some may even put a credit freeze, making it impossible for anyone to pull their credit.

Read On: Should I Unfreeze My Credit?

Ways to Avoid Pulling Credit When Buying Property

The fact is that buyers with weak or unconventional financial and credit profiles may have a more potent shot at closing on a condo or co-op unit owned directly by a sponsor.

Read more: What is a Sponsor in New York Real Estate?

Another name for a sponsor is the developer.

If it's not a sponsor unit, condo and co-op boards will do a credit check.

Co-ops can flat-out reject any applicant with a poor credit score. While condos cannot use the application process to disqualify a prospective buyer, a credit check is usually required.

Unlike apartments on the traditional market, sponsor-owned units can provide more flexibility for the self-employed, people who lead a debt-free lifestyle (and, as a result, don't have any credit cards, loans, and perhaps no credit score), and anyone else without a robust credit profile or stellar financials.

The other way to avoid a credit check is to pay for a home fully in cash.

This won't work with conventional units in a co-op or condo but with sponsors such as resales on townhouses and private houses.

However, taking out a mortgage—in lieu of paying cash—can be favorable if possible. You'll be debt-free in terms of the actual home purchase.

Of course, getting a mortgage would require getting a credit check.

Give Yourself Some Credit

So, this is an excellent opportunity to explore ways to improve your credit profile briefly.

Good credit is the bedrock for a successful adult life: Your credit score can affect your ability to rent an apartment, get a car loan, qualify for a mortgage, secure a line of credit—or even obtain a job.

Your first step should be to assess your current credit profile.

You can start by downloading a free credit report from www.annualcreditreport.com

As the site indicates, you can "Get a free copy of your credit report every 12 months from each credit reporting company" (i.e., Equifax, Experian, and TransUnion).

Also note, as the site states, this is "The only source for your free credit reports. Authorized by Federal law."

Be surenot to confuse this site with ones like www.freecreditreport.com, which (despite its name and language on its website) will charge you for credit monitoring.

In addition to your credit report, lenders and others also look at your FICO (short for Fair Isaac Corporation) score. The most excellent—and highest—FICO score range is 750–850.

Scores between 300 and 600 limit your opportunities and should be your focus for credit repair.

Five key factors determine your FICO score: payment history, amounts owed, credit history length, new lines of credit, and the types of credit (for instance, a mortgage versus a department store card).

In How to Improve Your Credit Score to Get Approved for an Apartment, of those five factors, "your payment history and your percentage of utilization about your full limit" has the most significant impact on your score.

In the piece, we explored easy ways to start repairing your credit—including fixing errors on your report, paying down your balances, automating payments, and more sophisticated measures.

You can find expert tips on improving your score directly from the article.

More from Your Mortgage

Once you've brought your credit profile and mortgage eligibility up to snuff, the best all-around mortgage available is the Federal Housing Administration (FHA) loan.

If you're a veteran, also look into a mortgage from the United States Department of Veterans Affairs (better known as a VA loan)—whose favorable terms are even better than those of an FHA loan.

Federal Housing Administration (FHA)

FHA Loans were created as an alternative to conventional loans. The FHA doesn't make the loans themselves.

Instead, a bank underwrites the mortgage (which must meet FHA standards), and the FHA is the guarantor that ensures it against borrower default.

VA Loan

Members of the U.S. military and surviving spouses are eligible for a VA loan.

Are auction properties an option for no credit check?

Another no-credit option, where you can use cash instead, is purchasing a property at auction.

The lure of such purchases is the possibility of getting a great bargain—a home priced well below market rate.

But with that great reward comes increased risk, so the key to securing that property is preparation.

Make your real estate team work for you.

Step one is assembling a crackerjack team that includes a real estate attorney and a real estate broker who are both experienced in auction properties.

Note, however, that most brokers don’t earn automatic commissions on live auctions—so there’s a disincentive.

Realtors do earn commissions through online auctions, though.

For a live auction, you can create your fee structure to incentivize a broker to work with you.

Other important info to know before you start

Second, gather as much information as possible about the home you plan to bid on.

Before you start, note that auction bidding tends to require a lot of cash, and paying money is needed to secure the right to bid.

However, it doesn’t stop there: There are also auction fees, property-preparation fees, bank fees, attorney’s fees, and others that you may need to cover—so do your homework upfront.

And be prudent and honest with yourself about your liquidity.

Next, you’ll need to find a property to bid on.

Foreclosures and unpaid property taxes are the two main pipelines supplying auction properties.

Other reasons that lead to available real estate for auction include couples splitting who need to liquidate their property, bankruptcy, or death, where heirs prefer to let a home end up on the auction block.

Where to look for auctioned properties

Here are some places to search for auction properties:

• RealtyTrac.com
• Auction.com
• Local governments (call or visit their websites)
• Real estate agents

Another reason to work with a real estate agent is to get access to an MLS (Multiple Listing Services) database (where brokers can see the listings of other brokers), which will widen your pool of property options.

Types of auctions

In your due diligence phase, note that there are two auction types:

• No home inspection is allowed
• An opportunity to conduct a home inspection

As would be the case, even with a non-auction purchase, the inability to inspect a home before acquisition adds significant additional risk.

That said, know beforehand which type of auction property you’re eyeing falls under.

As a novice to auctions, it would be safest to focus only on homes that allow inspection.

Also, ensure you thoroughly read and understand the auction rules—so there are no surprises.

Buyer beware

As for your actual research, you’ll be looking for any claims or liens against the property before bidding.

Hire a title search company to obtain this information.

Also, look up local government files on the home, leverage the real estate agent you’re working with (if you have one), and see if you can obtain information from block residents or shop owners.

Getting the best price

Be sure to research the going rate for homes on that block and in the area so you know how to bid—in a way that positions you for a deep discount on prevailing home prices.

It would be best to use Google Maps to explore the property and neighborhood before doing a physical drive-by.

Auction Logistics

When it comes to the actual auction, there are several categories:

• Absolute Auction: The property goes to the highest bidder—no matter how small the bid. Many different types of sellers—from banks to government entities—use this auction type.
• Minimum Bid Auction: This sets a floor—i.e., minimum bid—for you to participate. The minimum bid is published beforehand and announced at the start of the actual auction.
• Reserve Auction: While there is a winning bid, the seller reserves the right to accept or reject the request within a designated period. Usually, this is because the seller (though unannounced) has a minimum bid in mind.

Even if you have the winning bid, note that you’re still unclear!

You must pay the winning bid immediately—or within a day.

This will require cash, a check, or a money order.

If you can’t pay immediately, you’ll have to prove that you can do so quickly.

Failure to fulfill your bid may have long-term consequences—including being banned from future auctions.

Important considerations

If you don’t want to use up all your cash reserves to buy the property, financing options might exist—particularly for bank-owned foreclosures.

Once you’ve paid for the property, buy title insurance as part of your escrow process, just in case there were things like liens or second mortgages you did not come across while researching.

Also, wait until you have the title and are officially the owner before measuring for the proverbial drapes.

The property owner might come up with the money owed on a lien or property taxes or contest the sale, so nothing is final until you have the deed.

The title process may take up to ten days.

Like traditional home-buying, before entering an auction, ensure you have all your other finances in order.

Ideally, aim to be debt free—or have low debt, have an emergency fund, and have enough money for any repairs or renovations on the property.

The hidden costs of buying all-cash

The notion of the “opportunity cost,” a financial term, applies here when paying cash for a home: Doing so may mean that money is no longer available if another great opportunity pops up shortly.

Buying in cash can be great because it makes you debt-free and can eliminate specific credit and transaction hassles.

The flip side of that coin is that getting a mortgage can keep your liquid assets intact—and available for other uses.

An auction property can be a fantastic money saver—or a money pit.

This can hinge on you taking the time to surround yourself with a knowledgeable team and doing your homework upfront.

So, yes, Buying a home without a credit check isn’t impossible—but there are limits.

And there are also advantages to getting that credit check and not paying cash.