Hey, Kyle here with winthehouseyoulove.com.
Today we're going to talk about how to get a mortgage without a credit score.
This is actually possible and I'm going to show you the steps that you need to take.
So, first of all, we're going to talk about what a manual underwrite is.
Then we're going to talk about how to get a loan with no credit score.
And then also a $92,000 difference between a loan with no credit
score and a loan with credit score.
Okay.
So first we'll we have to clear up is there's a difference
between no credit and bad credit.
All right.
So this loan is only for, if you have no credit whatsoever, you've
never opened a credit card or an auto loan or anything that has debt
attached to it, you've never opened.
Okay.
So this cannot be used to solve bad credit, right?
So if you have, delinquencies or collection accounts, you can't
use a loan like this it it place.
This is only for people who have no credit history at all.
So what's going to happen is the lender is going to pull your credit
to verify that you don't have a credit score, alright if you have a
lower credit score, you're going to have to use that lower credit score.
Now, if you don't have any credit score, then you can move forward with
four different types of loans I'm going to show you here in just a bit.
So the reason this works is because there's two different
types of underwriting.
You have manual underwriting and automated underwriting.
Automated underwriting is when a software underwrites your loan file
and that's a lot easier to pass.
It's a lot easier to get an approval on.
A manual underwrite is when an underwriter is manually looking at every
single thing in your mortgage file.
So they're verifying all of that information and a manual underwrite
requires a lot more documentation and overall is a little bit
more stressful of a process.
It's also, manual underwrites rates are normally only for riskier loans.
So people with lower credit scores, higher debt to income ratios or,
who have no credit score at all.
All right.
So what happens in a manual underwrite is credit is underwritten differently,
but everything else stays the same.
So you still need to have consistent employment.
A consistent income, consistent employment.
You need to have funds to be able to close if you're bringing a down payment and then
the property requirements are the same.
Everything stays the exact same thing for the loan, but what's different is
your credit is underwritten differently.
When you're doing an automated underwriting, you have your credit
report that gets fed into the computer software and the computer will give you an
approval or denial based on your credit.
With a manual underwrite, the computer is going to read
everything except for credit.
And then underwriter is going to manually analyze your payment
history in place of credit.
All right.
Before we move on, let's have a quick CalmMoment because underwriting
can feel super overwhelming as you're going through this process.
And especially when you're trying to figure out your unique scenario with your
finances and your credit, it can feel intimidating to talk with somebody about
the next steps, because maybe they'll give you an answer that you don't want to hear
and just know that loan officers, they want you to be able to purchase a home.
Alright.
They make money when you purchase a home and get a loan.
So they are on your side.
All right.
So it's always beneficial to talk with somebody, especially if you're
in a place where you feel like I'm not quite sure where I stand.
What you want to do is get clear answers instead of trying to make up a, you
know, answers for yourself in your mind.
So take a moment, take a deep breath.
And then go talk with a loan officer and you can say, Hey, I'm not really
sure where I stand with my credit.
You know, I've maybe had some of these financial things happen, could you help
us get on a game plan so that we can have a better picture of if we can buy a house
and if not, what we need to do, what we need to work on to get to that point
in six months, in a year, in two years.
Okay.
So let's compare these two.
So here on the left, we have a traditional mortgage.
Now this is with the automated underwriting software.
All right.
Traditional underwriting, on a regular mortgage.
On the right we have a manually underwritten loan.
Okay.
And again, these loans are the same, but they're underwritten in different ways.
So first let's talk about the rate, the rate on a traditional loan is going to
be lower and on a manually underwritten loan it's higher because the risk is
higher on a manually underwritten loan.
So when I priced these outs, earlier this week, the manually underwritten loan was
coming in around 5% versus the traditional loan, which was coming in around 3%.
So what that was saying is having no credit score is
going to get you a 5% rate.
And having a credit score, an established credit score is going to get you 3% rate.
So you can see how much difference there is between the two.
And if you took a $200,000 loan, that difference is $92,000.
Okay.
So having a credit score can save you $92,000 on a $200,000 loan versus
not having a credit score at all.
Now, as far as the ease.
A traditional loan is way easier than a manually underwritten loan.
Manually underwritten loans are difficult.
And the reason why is they have a lot more paperwork to them.
And you're probably going to be expecting a longer closing time.
Now purchasing power changes as well, because on a traditional loan, you can
have a higher debt to income ratio.
Versus on a manually underwritten loan, it's going to be a
lower debt to income ratio.
And that purchasing power can be pretty significant.
That's a difference you know, if you're talking about from a 3% rate
to a 5% rate, along with the fact that manually underwritten loans require
a lower debt to income ratio than traditionally underwritten loans, you
could see a difference of maybe on this side, you're approved for $200,000.
But with no credit score, you might only be able to get approved for $125,000.
Now those aren't hard numbers.
It depends a lot on what's going into your debt to income ratio but you can
have a huge shift in how much you're able to purchase because a lender, if
they don't have a track record of your credit, they don't want to, or they're
not as willing to lend you money.
Also the speed.
Manually underwritten loans are a lot longer.
So you want to expect around a 45 day closing compared to a
traditionally underwritten loan you're looking closer to 30 days.
And manually underwritten loan can go faster, it can go slower.
It just depends on the lender itself, but normally they're going to be
a bit longer than a traditionally underwritten loan because they require
more documentation and somebody looking a little bit more closely at your finances.
And then finally from an emotional perspective, a traditionally
underwritten loan has a lot less anxiety than a manually underwritten one.
Because on a traditionally underwritten loan, you have clear answers at
front from the computer software that says if you're approved or not.
On a manually underwritten loan, the computer software basically says, Hey,
we have to manually underwrite this.
And then an underwriter has to look at all of the details before
you get that final approval.
So it can have, you can have a lot more anxiety on the manually underwritten
loan if you don't have a credit score.
Okay.
So a good way to think about this, this difference is credit is kind of the
story that you're telling to the lender.
The lender is about to give you several thousand dollars, right?
Possibly several hundred thousand dollars.
And what you have to do is tell the story that you're good with paying back debt.
So normally a credit score tells that story for you, right?
Your credit report is going to show a lender how well you use debt.
How do you pay it back?
Do you pay back on time?
How much do you use?
That is going to tell the story of how you use debt.
If you don't have a credit report and you don't have a credit score because
you've never used credit, you have to have another way to tell the story
that you could pay back money, right?
Because if you were going to give $200,000 to somebody you'd want to know, are they
actually going to pay me that money back?
The lender wants to know the same thing about you.
So in place of a credit report, what you're going to
do is get credit references.
And all this means is you're going to find a payment history that you've already
made on other accounts that aren't debt.
So normally for a manual underwrite, you're looking at three, 12-month,
on-time credit references.
And here's some things that could be, they could be your rental payments.
They could be a telephone bill and they could be utility bill.
If you don't have any of those, you could look at auto insurance.
You could look at, maybe accounts that you have with other places.
Anything, that's going to show that over a 12 month or longer period of time,
you can pay things back consistently, or you can pay things to installment
accounts consistently, like utility bills.
Now you can't have any missed rental payments in the past 12 months.
So if you were behind on rent, then you're not going to be able to
get a manually underwritten loan.
But you can't have a max of one missed monthly payment on
some of these other accounts.
Okay.
And just as a side note, I have a PDF that you can download that's
going to show you a seven different ways that you can save money on
buying a house and getting a loan.
You can go to winthehouseyoulove.com/free to get that.
Okay.
So some other requirements as well.
This is only for a primary residence, so you can't get
this on an investment property.
You have to live in the home to get it.
Also, you're normally going to need one month of reserves in
your bank account after you close.
So a month of reserves is what you do is you take your monthly payment,
and that's your reserve amount.
So if you need one month reserves and your payment is $1,000 per month, then you need
$1,000 in your bank account after you pay for your down payment and closing costs.
What the lender wants to make sure is that, you don't empty
your bank account to get the loan.
They want to make sure you have money left over.
And that's what the reserves are.
Now let's talk about the ratios because the ratios are a lot different
on manually underwritten loans.
So here I have, the four different loan types and you can do all of
these loans with no credit score.
All right.
So on a conventional loan, they have a backend debt to income ratio of 40%.
And no front end ratio.
The front end ratio is your proposed housing expense.
So the cost of your mortgage, divided by your total monthly debt, and I'm sorry,
your total monthly income and then the back end ratio is your mortgage payment
plus debts divided by your monthly income.
So on FHA it's 31%, 43% on VA they use residual income.
They don't count a debt to income ratio and I'll make a
video on that in the future.
And then USDA is 29% and 41%.
Now, as far as the down payment, conventional requires 5% down.
FHA requires 3.5% down.
VA 0% down and USDA is 0% down as well.
So you can still put a really low down payment, even if you don't have a credit
score with all four of these loans, you just have to keep in mind those
debt to income ratios are a lot lower.
So something to keep in mind as well as you can always refinance this loan
when you get a higher credit score, so you can get your mortgage and then
maybe you refinance in a year or two, when you start having a little bit more
credit history and take that higher interest rate and lower it down a
little bit, when you do your refinance.
So what you want to do is you want to talk to a lender first about if they
offer manual underwriting, don't go through the whole process only to find
out that, you know, they're going to come back and say, Hey, we can't do the
loan cause you don't have a credit score.
Make sure that they do manual underwriting with no credit score beforehand.
So you can talk with a mortgage broker who can connect you with a lender.
Some others are Carrington, Churchill, Guild, and Navy Federal Credit Union.
So some steps to establish good credit after you close on your
loan, this is going to help you be able to refinance in the future.
Is number one, you want to make sure that you pay your mortgage on time.
Okay.
If you fall behind on that payment, it's going to be extremely difficult
to refinance in the future.
And it's going to tank the credit that you're establishing, because getting a
mortgage is now going to start you having things on your credit report and you
want to make sure all of that is good.
Remember it's about the story that you're telling with your credit.
So make sure to pay your mortgage on time.
Also consider opening two credit cards and keeping a low balance on them.
What that's going to do is help open two revolving accounts.
A mortgage account is going to be on your credit report,
plus two revolving accounts.
And that's going to help increase your credit score and give you more credit
history for when you want to refinance.
And then what you want to do is explore the refinance
when your credit goes higher.
Again, this might take anywhere from one to two years, but that's going to
help you take your interest rate that higher manually underwritten interest
rate and lower that down with refinance.
Okay.
So, if you want to learn more about building credit to buy a house, because
it might be advantageous for you to build credit first, before you look
at getting a no credit score loan, this video over here is going to
help you understand how to establish credit before you purchase a home.