What Borrowers Without A Credit Score Need To Know
18 October 2016 by The Churchill Team

Let's not beat around the bush - getting a mortgage loan these days without a credit score can be downright tough! While the majority of mortgage lenders do not offer no credit score loans, the Churchill Team accommodates this type of loan on a regular basis with expertise.

If you’re ready to complete Baby Step 6, to start building wealth through homeownership, or to build a mortgage plan that will get your there, we’d love to talk with you. Before we get started, here are a few things you need to know:

Dave Ramsey's Plan

Dave Ramsey listeners will know that Dave has not had a credit score for a very long time and is doing just fine. Dave's plan of getting out of debt works and we believe that every customer deserves the real American dream of debt-free homeownership.

At Churchill, we understand this and will work hard to make sure responsible people are not penalized that do not have traditional credit. Below you will find how to best prepare for a mortgage if you do not have a credit score.

If I have a credit score, how can my credit be "insufficient?"

A lender must ensure that a consumer has a reliable history of making payments. Let's say you have a credit card that has been open for 11 months and reports to all three credit bureaus. Your mortgage credit score is 721, and you have never made a late payment. According to the guidelines, you have insufficient credit history, because there is only a credit history of 11 months on one "minor" form of credit. Most underwriting guidelines are going to require at least 4 credit tradelines that have been open for 12 months or more that are paid on time. Therefore, you will be required to come up with similar documentation needed when you have no credit score.

What will I need to get qualified if I have insufficient credit or no credit score?

Depending on the type of credit history you have, you typically must have 4 alternative credit tradelines with a 12-month payment history from the creditor stating they were paid on time. The types of credit that can be used to develop a nontraditional credit history are those that require you to make periodic payments on a regular basis (at least quarterly). In all cases, the payment history for each credit reference must be documented for the most recent consecutive 12-month period. All credit sources must be included, not just those that reflect acceptable performance. (Alternative credit can be items such as cell phone bills, utility bills, insurance that is paid monthly or quarterly but not payroll deducted, school tuition, child care, or rent payments).

Depending on the type of mortgage you are applying for, if you are living rent-free, things can be more difficult. A conventional loan without a 12 month rental payment history will require 12 months of assets to cover your principal and interest (P&I); taxes; property, flood, and mortgage insurance premiums (as applicable), also known as PITIA. A good solid emergency fund is the cornerstone of Baby Step 3.

Longer to underwrite

No credit score loans require an underwriter to scour every piece of documentation in the file to establish your history of payments for non-traditional or alternative credit to make sure the risks have all been identified. That takes time - about 3 times as long as a normal borrower file. Don't look for quick answers, because the quick answer is easy - no. We want to give that underwriter time to be familiar with all the aspects of your loan file so they can give the approval with confidence. This may even require additional documentation that doesn't seem to make sense to most of us. But let's remember the goal; give the underwriter what they need to feel comfortable with the risks on the loan to issue an approval. From the time the underwriter receives the file, give them at least 60 days to underwrite it. Be sure to discuss this with your Home Loan Specialist so they can give you a better idea of current underwriting times based on your specific loan needs. Keep this in mind when writing a contract closing date.

Best chance - 15 year fixed rate with 20% down

We have found the loan that has the best chance for approval is one that is on a 15 year fixed rate and the borrower has 20% down.* This eliminates the need for the mortgage insurance, and presents a lower risk to the loan servicer.

Protect yourself

Don’t make any home purchase commitments without contingencies in place until after you are “cleared to close”. We don't advise customers to sign sales contracts for a purchase without some strong protective contingencies to cover you in the contract. One obvious protection would be to make the sale contingent upon the borrower being fully approved, otherwise all earnest money can be returned to the buyer. Stay away from any 100% commitments until you know your loan has been "cleared to close" and there are absolutely no other conditions needed.

How to prepare

Here is what you need to do if you have no credit score but wish to purchase a home:

  1. Make sure you have 4 alternative credit tradelines, with one of them being a rent or lease payment. Contact the creditors and get a letter from each of them on their letterhead showing your name and account number, and stating your account has been "paid as agreed for the last 12 months." This is a good start, but further documentation could be required from the creditor.
  2. Try to have a full 20% down payment. **
  3. Get Preapproved long before you start looking for a home. You don't want to get your hopes up and get emotionally attached to the home of your dreams, only to wait 45 days and find out you cannot get approved.

In summary, no credit score loans are harder to document, harder to find lenders that will underwrite them, take longer to underwrite, may require a significant down payment, and require you to take precautions in the event the program is no longer available.

With all that said, we still close no credit score loans at Churchill Mortgage. We will help explain the process in greater detail to help you prepare and protect yourself accordingly. If you’re ready to take the next step and get started, we’d love to talk with you.

Or You Can Call: 888.562.6200

** for a 15 year loan, a $100,000 mortgage loan with a rate of 5.00% (APR 5.266%) and a 20% down payment ($25,000) on a purchase price of $125,000 would have a monthly payment of $790.78.*

Important Notices: The interest rates, annual percentage rates (APRs), discount points and rebates shown are subject to change without notice. The monthly payment amount shown includes principal, interest and mortgage insurance only. Your actual monthly payment will be higher if an escrow/impound account is established or required. Your APR will vary based on your final loan amount and finance charges. Stated rates and terms intended as examples only. Call 888.562.6200 for current rates and terms.