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One of the side effects—or side benefits—of becoming and living debt-free is that you eventually have a credit score of zero. If that’s you, congratulations! You’re unscorable, and because you’re invisible to credit sharks and credit bureaus, you face a unique challenge: How can you prove to a mortgage lender you’re a reliable borrower without a credit score?
It’s going to be a little tough—but don’t lose hope. You can get a mortgage without a credit score. It’s totally worth it. And we’re going to show you how.
What Is a Credit Score?
But first, what exactly is a credit score? A credit score is a three-digit number that measures how well you repay debt. In a nutshell, a credit score is an "I love debt" score. It says you’ve had debt in the past, and you’ve been tremendous, moderate or awful at paying it back. Three major credit bureaus—TransUnion, Experian and Equifax—use credit-scoring models, like VantageScore and FICO, to come up with a score that ranges from 300–850.
But trust us on this—a credit score is not proof of winning financially. Sure, you’ll meet plenty of folks who brag about their credit score like it’s some kind of pick-up line ("on FICO scale, I’m an 850"). Don’t be fooled. A credit score doesn’t measure your wealth, income or employment status; it measures your debt in these five areas:
Before you shop for a house, get pre-approved.
- 35% of your score is based on your debt history.
- 30% is based on your debt level.
- 15% is based on the length of time you’ve been in debt.
- 10% is based on new debt.
- 10% is based on type of debt.(1)
What Credit Score Should You Have?
When it comes to credit scores, you’ll get a lot of bad advice: "Get a credit card or car loan to build up your credit. Don’t run up your balances, always make your payments on time, and never close your accounts." Basically, folks will tell you to go into debt and never get out. What’s more, they’ll tell you this is the only way to qualify for a mortgage.
But there’s another way—you don’t have to sacrifice your wealth at the altar of the almighty FICO. That’s the way normal people buy a home—and normal is broke. Take it from us: The best credit score is none at all.
So how do you become unscorable? It’s simple, really. First, pay off all your debt. Then, put all your credit cards in a blender and press chop. Never take out another credit card or line of credit again and let your credit score disappear.
What’s the Difference Between No Credit and Low Credit?
Before we go on, let’s get something straight: having no credit score is different—light years apart—from having a low one.
Having no credit score doesn’t mean you’ve handled debt poorly. It means you’ve avoided debt and are attempting to build positive net worth. If you don’t have a credit score, you’ve more than likely kicked debt to the curb and never let it back into your life again.
A low credit score, on the other hand, could mean a couple things. Because 35% of your score is based on your debt history, a low score could mean you’ve been in debt for a short period of time.
More likely than not, though, a low credit score means you’ve made big money mistakes in the past: You’ve filed bankruptcy, defaulted on a house, or racked up a ton of credit card debt that you haven’t been able to repay.
Whatever the reason, a low credit score will be difficult to overcome with nearly any lender—even those who allow alternative credit histories. If you have a low credit score, pay off all your debt, don’t miss any bills, and wait until your credit score disappears, it will be much easier for you to get a mortgage with no credit score than a low one—trust us.
Is an FHA Loan a Good Option?
When you have no credit or less than stellar credit, lenders will often try talking you into an FHA loan. But we’ll go ahead and tell you now: An FHA loan is expensive—way more expensive than a conventional mortgage—and it’s not the smartest option in the long run.
What’s an FHA loan?
An FHA loan is a government-backed mortgage that makes purchasing a home easier for first-time homebuyers or folks who can’t easily qualify for a conventional mortgage.
Why is an FHA loan "easier" to take out?
The qualifications on an FHA loan are low—so low, in fact, that if you have no credit history (or a low credit score) and at least a 3% down payment, you’ll more than likely qualify.
What’s the problem with an FHA loan?
On the surface, FHA loans seem harmless. What could be wrong with a loan program designed to help first-time homebuyers buy homes? But underneath the low-entry requirements is a loan steeped in fees and extra mortgage insurance that makes you pay higher long-term costs. For a $200,000 house, you could pay $30,000 more when you take out an FHA loan compared to a 15-year conventional mortgage. That’s ridiculous!
How Can You Get a Mortgage Without a Credit Score?
Look at it this way: Lenders treat credit scores like stories. The higher your credit score, the better your story with paying off debt. The lower your score, the more likely your story ends in mounds of unpaid bills. But if you don’t have a credit score, you can still tell your financial story. You’ll just have to go about it in a different way.
While getting a mortgage without a credit score is more difficult, it’s not impossible. You just need to find a lender who does manual underwriting, like Churchill Mortgage.
While getting a mortgage without a credit score is more difficult, it’s not impossible. You just need to find a lender who does manual underwriting.
What’s manual underwriting?
Manual underwriting is a hands-on investigation into your ability to repay debt. You’re about to take on a mortgage, and they want to know you can handle it. As you’re going through the underwriting process, you’ll have to submit lots of documents—like proof of income and a history of rental payments—that prove you’re financially responsible.
How can you get a mortgage through manual underwriting?
You can’t just walk into a bank or mortgage lender office and walk out that day with a home loan using manual underwriting. Remember, this is the way credit-free people do it, so there are some requirements you’ve got to live up to. Specifically, you must:
1. Bring proof.
The first hoop will be documentation—lots and lots of documentation. You’ll need to show verification of your income for the last 12–24 months, as well as a steady payment history for at least four regular monthly expenses. These expenses may include:
- Utility bills not included in your rent payments
- Phone, cell phone or cable bills
- Insurance premium payments
- Child care or school tuition payments
The more evidence you can provide of your on-time payment history, the higher your chances of qualifying for your mortgage.
2. Have a big down payment.
Normally, we recommend a down payment of 20%—10% at the very least. But unscorables should aim for 20% or more since it reduces the lender’s risk and demonstrates your ability to handle money responsibly.
3. Stick with a 15-year conventional mortgage.
No FHAs. No subprimes. Nothing but your good ol’ 15-year conventional mortgage. Your monthly mortgage payments on a 15-year loan should be no more than 25% of your take-home pay.
How to Get a Mortgage Without Credit
Not every lender offers manual underwriting—but Churchill Mortgage is one lender that does. The specialists at Churchill know it’s a hassle to get a mortgage without a credit score. That’s why they’re committed to making the manual underwriting process as simple and easy as possible. Go over to Churchill Mortgage to get started now!