A Home Mortgage Without a Credit Score?

It seems like every week, someone asks the question “can I get a mortgage without a credit score?”

Credit is so ingrained in our society that many people believe that credit scores are a necessity. That you must build your credit score, otherwise you will end up living in a van down by the river.

I will let you in on a little secret… I do not have a credit score! I used to have one. In fact, I used to have a really good credit score. However, I paid off all of my debts, stopped using credit cards, and actually closed my credit card accounts. After a few years, my credit score just vanished like piece of steak left alone with a dog.

Remember, no credit score is better than a low credit score.

If you have no credit score, it really means that there is not enough information on your credit report for a score to be developed. Basically, the credit scoring algorithm cannot crunch a three digit number with the information provided. If you have no credit score, then lenders have to either say you are “unapproved,” or they have to look at other means of determining your creditworthiness.

If you have no credit score, and wish to get approved for a mortgage, then you will need to find a lender who performs “manual underwriting.”

Manual underwriting simply means that the lender can process and analyze non-traditional forms of credit (as opposed to simply looking at a credit score). Sounds pretty simple, right? Well, on paper it is simple; however there is a small problem…

Underwriting guidelines have tightened ever since the sub-prime mortgage crisis that hit its climax in the fall of 2008. A primary cause of the mortgage crisis was a large number of mortgage loans being approved with non-traditional forms of credit. As a result, lenders today are much more conservative when it comes to issuing mortgage loans.

Most mortgages these days are bundled and sold to investors in the form of mortgage-backed securities. Investors want to know that the mortgages backing those securities are safe and have only been issued to credit-worthy borrowers.

As a result, obtaining a mortgage without a credit score is difficult and takes much more time. However, it is not impossible.

If you want to obtain a mortgage with no credit score through manual underwriting, you will need to provide additional documentation. Keep in mind that people who are seen as high credit risks must show this same type of documentation.

The first type of documentation is regarding income. You will need to show income verification for the last 12 to 24 months. This would include pay stubs, tax filings, and other similar documents.

The second type of documentation is regarding payment history. Lenders will want to see a steady and positive payment history of between 12 and 24 months for at least four of the following:

  • Rent
  • Utilities
  • Phone
  • Insurance
  • Childcare or school tuition

You may also need to provide at least one “compensating factor.” While this may not necessarily be required, it can go a long way towards helping you secure a mortgage. A compensating factor is really just a sign that you have some skin in the game (thus you are less likely to split). The best compensating factor is a solid down-payment. If you can offer a down-payment of 20% (which is highly recommended), then you can vastly improve your chances of being approved.

Finally, you need to give your lender time. Mortgage underwriting is tough work these days, and many loan officers need to jump through hoops to get loans approved as it is. Manual underwriting adds to the work load, so you need to give your lender time. If you ask for your manually underwritten loan to be processed fast, they can do it for you by simply saying “you’re not approved!” So give it time, patience, and trust the process.

There are basically two types of mortgages that you can obtain through manual underwriting. The first type is FHA, which allows for non-traditional forms of credit. The second type is conventional; however few conventional mortgage lenders perform manual underwriting. If possible, you want to obtain a conventional mortgage. Why? Because FHA loans require private mortgage insurance to be purchased and this can be very costly and does not help the borrower.

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