Can You Buy a Home in NYC Without a Credit Check?
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 indeed be accomplished without credit scrutiny, it's not completely avoidable – unless you happen to be 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 if you have no credit.
- Purchasing a home without a credit check is possible in New York as long as you're buying in cash.
- Applying for a mortgage will require your credit to get pulled
- Buying an apartment in a co-op and a condo will require a credit check even if you're buying all cash, unless buying 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 quickly improve your credit.
Reasons Why You Don't Want Your Credit Checked
We all face having our credit pulled now and then, depending on the financial decisions you are making.
Our credit report gets pulled every time we need financing for things like expensive electronics like smartphones, TV, laptops, or appliances, as well as for vehicles like cars, boat, and motorcycles.
It definitely 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
Having a less than great credit score is not as uncommon a situation as you think. According to FICO, about 43% of Americans have a score less than 700, with 30% being 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 would not exclude 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 and probably subjects 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 normally this does result in your credit score dropping dramatically.
However, unlike having bad credit for a number of 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 will no doubt come up with a bankruptcy on your history.
You've had too many inquiries
Having your credit pulled too many times in a giving 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 quite as detrimental has 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 victim of fraud or identity theft, you may feel very hesitant about letting anyone pull your credit.
After all, your report is full of very sensitive and personal information that can harm or ruin your life.
Some may even go as far as putting a credit freeze, which will make 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 stronger 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 sponsor is the developer.
If it’s not a sponsor unit, condo and co-op boards will definitely 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 normally 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 obviously, but with sponsors of such as well as resales on townhouses and private houses.
However, if possible, taking out a mortgage—in lieu of paying cash—can be favorable. 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 a good opportunity to briefly explore ways to improve your credit profile.
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
Note, as indicated on the site, that 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, that 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.
It is score ranges between 300–600 that 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 in relation to your full limit” has the biggest impact on your score.
In the piece we explored easy ways to get started repairing your credit—including fixing errors on your report, paying down your balances, and automating payments, as well as more sophisticated measures.
You can find expert tips on how to improve 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 actually make the loans themselves.
Instead, a bank underwrites the mortgage (which must meet FHA standards), and the FHA is the guarantor who insures it against borrower default.
Federal Housing Administration Pros & Cons
- Doesn’t require a strong credit score (a minimum of 580 is preferred—but scores below that aren’t automatically disqualified).
- No minimum or maximum income limits.
- No large down payment (3.5% for scores of 580 or higher; 10% for scores below 580).
- Can use FHA loan to finance up to 96.5% of home-purchase price (conventional mortgage only finances 80-90% of the purchase price).
- Allow for a higher debt-to-income ratio than conventional loans.
- Can also be a fixed rate or ARM (adjustable-rate mortgage).
- Only single- and multi-family homes (the latter is 2-4 units) are eligible.
- Buyers with a bankruptcy, short sale, or foreclosure on their record must first enroll in the FHA’s “Back to Work” program to become eligible for an FHA loan.
- Applicants will have to wait between 24–36 months after a bankruptcy, short sale, or foreclosure to be able to apply for an FHA mortgage.
- FHA loans are not accepted at New York co-ops.
- Very short list of condo buildings and units approved for FHA loans in New York City, making it almost impossible to purchase a condo much less in a brand new development.
Members of the U.S. military and surviving spouses are eligible for a VA loan.
VA Loan Pros & Cons
- Accommodates high debt-to-income ratio.
- Option for no down payment.
- No minimum credit score.
- Lower interest rate than competing loans—including FHA.
- No PMI (private mortgage insurance) required (for those who can’t do a 20% down payment, PMI is mandatory and must be paid monthly for the life of the loan—which can add up).
- No loan limit.
- Lower closing costs
- Must be on active duty or honorably discharged and served in the reserves for at least six years to qualify—or had a husband or wife killed in the line of duty.
- No loan limit—but limit on the percentage of the loan (25%) the VA will guarantee.
- VA charges a funding fee (a percentage of home price, to cover operating costs—fee usually rolled into home-purchase price; fee can be up to 3.3%, depending on if first VA loan or not—and can add a significant cost to the overall loan).
- Lender overlays (additional requirements for borrowers who take out a VA loan with a direct lender; since the VA only guarantees 25% of a loan, these overlays ensure the lender can underwrite the loan.
- Can’t use VA loan for co-ops, manufactured homes, or rental property.
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 successfully securing that kind of property is advance 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 own fee structure to incentivize a broker to work with you.
Other important info to know before you start
Second, gather as much information as you can about the home you plan to bid on.
Before you get started, note that auction bidding tends to require a lot of cash, and paying cash is required just 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 up front.
And be prudent and honest with yourself about your liquidity.
Next, you’ll need to find 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 a 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:
- Local governments (call or visit their websites)
- Real estate agents
Another reason to work with a real estate agent is getting 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 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 purchase adds significant additional risk.
That said, know beforehand which type of auction a property that you’re eyeing falls under.
As a novice to auctions, it would be safest to only focus on homes that allows for inspection.
Also make sure that you thoroughly read and understand the auction rules—so there are no surprises.
As for your actual research, some key things you’ll be looking for prior to bidding are any claims or liens against the property.
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 even 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.
You should use Google maps to explore the property and neighborhood prior to doing a physical drive by.
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—in order 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 bid within a designated period of time. 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 not out in the clear yet!
Typically, you have to pay the winning bid immediately—or within a day.
This will require cash, a check, or a money order.
If you can’t pay right away, you’ll have to provide proof that you can do so—quickly.
Failure to fulfill your bid may have long-term consequences—including being banned from future auctions.
Note that if you don’t want to use up all your cash reserves to buy the property, there might be financing options—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 that you did not come across while doing your research.
Also wait until you have the title and are officially the owner before you start 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 actually have the deed.
The title process may take up to ten days.
Just like traditional home-buying, before entering an auction, make sure that 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
There’s the notion of the “opportunity cost,” a financial term, that applies here when paying cash for a home: Doing so may mean that cash is no longer available if another great opportunity pops up in the near future.
Buying in cash can be great because it makes you debt-free and can eliminate certain 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.
Which one can hinge on you taking the time to surround yourself with a knowledgeable team and really do your homework up front.
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.
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