Background:
This is a post about purchasing a home with no credit score. We used to be huge Dave Ramsey fans and followed his Baby Steps for personal finance. Thanks to that plan, we paid off approximately $130k in debt. After learning about numerous problematic issues around Dave Ramsey and his brand, we pulled our support for him a few years ago.
Dave Ramsey teaches his followers that you don’t need a credit score. It’s one of, if not THE, most counterculture recommendations he has. He recommends getting rid of all debt products. And because the credit score is a measure of a person’s relationship to debt, the score goes away if you don’t use debt.
We’re fans of this idea, even still. As people whose lives were deeply affected by debt, not supporting the predatorial debt industry is something we easily get behind.
So when we paid off ALL our debt, our credit scores did disappear. Dave Ramsey tells his followers that you can obtain a mortgage without a score through a process called manual underwriting. He heavily endorses Churchill Mortgage to be able to competently handle this process.
About midway through 2022, inspired by a stressful moment of being completely over renting, I decided to look at the process of securing a mortgage. I started with Churchill since I figured they would understand our unique and specific situation. The whole experience was truly awful.
I’ll save the details of that story for another time, but it left us with a lot of uncertainty and anxiety about the reality of securing a mortgage with no score. An idea I believed in so strongly, backed by Dave Ramsey’s word that it would be no big deal, was starting to fall apart.
After a few months, we decided to call other lenders. Most couldn’t even comprehend how we didn’t have credit scores. They did not know how to handle borrowers in this situation and weren’t familiar with manual underwriting. (Some places told us it’s more common to do with FHA loans, but we knew we wanted a conventional loan).
Eventually, we called Elements Financial, a credit union in Indianapolis that my sister and her spouse used for a mortgage. In hindsight, I should have called them much earlier. I hesitated because we were looking for a loan in Arizona and I wasn’t sure they’d service our city/state.
I called them and briefly explained our situation. It was an easy and seamless process from the beginning with Elements. The woman I spoke with knew exactly what we were talking about. She didn’t shame us, act shocked, mansplain, or condescend us, or anything like that.
What we got:
I asked for a $400k conventional loan. We were approved for $400k at 10 percent down, a 30-year loan term, and no PMI. We ended up with a 6.125% interest rate, which is the same rate they currently offer to folks with a 740 credit score.
*I didn’t specify the term of the loan we wanted, so we went with the default of a 30-year mortgage. Dave Ramsey recommends 15 year mortgages. In the future, we can refinance when/if rates go down. We could refinance later for a 15 year mortgage. And of course, we can pay more on the 30-year mortgage as if it were a 15 year when we’re ready.
I can’t stress enough the contrast in service that came from Churchill Mortgage v. Elements Financial.
Elements Financial made purchasing a home with no credit score such a seamless process. We truly couldn’t be more grateful.
We purchased a home for $390k, put $39k down. And tomorrow we move in!
Now that we’ve purchased a home with no credit score, here are my tips to anyone else considering the process:
If you’re planning to own the home with another person, be sure to have two “nontraditional” bills each, together or separately.
I’m typically the person setting up all our bills. My spouse is always an authorized person on each account but the statements were set up in a way that only reflected my name. The lender needed payment history that showed his name too.
I called all our utility companies and asked them to add his name to the statements. It usually can’t be backdated, so I’d recommend ensuring this is done months in advance of when you want to buy. We were able to get a personalized payment history from our car insurance payments that showed both of our names. But it was hard to track down a bill that had my spouse’s name on it.
Our lender wanted us to have 12 months’ worth of payments “in reserve. Which I believe means retirement accounts or savings that can be used to cover the mortgage payments in case of emergency. You can always call and ask what specifics you’ll need but we needed to prove this.
Thankfully, we have a few retirement funds with enough money in them to get approved.
Start the process early to get an idea of what you’ll need in case you can’t get approved right away.
One good thing about the Churchill experience previously, was finding out I’d need to add my spouse to our bills. This helped when we got to the point of reaching out to Elements, who requested the same thing.
If you’re doing manual underwriting, call around. It’s likely going to take time to find a lender who is familiar with this process, and it can get discouraging. I highly recommend Elements Financial.
As a last-ditch effort, you can use Churchill. We were eventually approved by them after tons of back-and-forth frustration. If you use Churchill, make sure you confirm they actually submit your application for manual underwriting. This was the huge, obvious step they failed to do for us the first time they handled our application. Which was unexpected considering how heavily they advertise themselves as experts in this process.
(Side note: When we were approved by Churchill, they gave us a higher interest rate than Elements, even on a 15-year mortgage, and they had PMI insurance included).
With Churchill, I’ll hold space for the fact that it could depend on which representative you happen to talk to. I’m not sure. But I know who we talked to clearly didn’t understand the process.
If you do have to go with Churchill for “a no score” mortgage because you can’t find someone else, consider refinancing when it makes sense to another company. I personally wouldn’t trust them with handling such a big purchase/loan and their customer service is awful.
*Keep in mind that once go back into debt for the house, you’ll have a credit score again. This will hopefully make it easier if you want to refinance with another lender, for a better interest rate, loan term, or whatever.
Below is a summary of documents we provided to Elements:
- Retirement account statements
- Savings and checking account statements
- 12 month rental payment history
- Two nontraditional payment histories for each person applying (phone, insurance, electric, internet, etc.)
- Standard ID verification stuff (license, etc.)
- Income verification: paystubs, tax statements, employment histories
TLDR:
It’s possible to get a mortgage loan without a credit score. I can’t promise it’ll be easy to find a lender who is competent and familiar with the process. I highly recommend using Elements Financial since we had personal success and a great customer service experience with them.
Check into the process early so you can make sure you have everything you’ll need. And hopefully, this post will help if you’re purchasing a home with no credit score.
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