Getting A Mortgage Without A Credit Score? Yes, You Can And Here's How!
By the time the average American graduates high school and enters college or takes their first job, they have probably already been bombarded by dozens of credit card offers. When the application envelopes are opened, these offers congratulate the recipient and work to convince them that accepting debt is a good prerequisite for their future and that managing debt successfully will help them achieve their financial dreams.
The downside of living with no debt
As evidenced by the growing popularity of a radio and television personality who endorses a cash-based lifestyle, there is a groundswell of young adults who have chosen to avoid applying for credit and an equally large number of people who have decided to pay off existing debt and avoid taking on any new debt in the future. But living without debt can seem to have an apparent downside because it causes the FICO score to zero out after a few months without any new entries in your credit report.
The FICO score is the basis for automated underwriting
While many people who use credit are somewhat improving their score, they may lack a good understanding of the FICO score. An acronym that stands for Fair Isaac Corporation, this score has become the basis for automated underwriting processes related to the approval or denial for mortgages and other loans, such as those for vehicle or business purchases.
While the exact way in which a FICO score is determined has not been fully divulged, it is known that it is calculated using the following data:
- the credit history of the loan applicant as a whole, including their payment history
- the amount of debt they currently have
- the types of credit they are using, including unsecured consumer debt such as credit cards and store charge cards, as well as secured debt such as vehicle, real estate, or business loans
- any new credit inquiries
For the purposes of applying for a mortgage, the automated underwriting process is weighted to focus on the FICO score in order to make the initial determination of whether or not the loan application will be approved.
Bypassing the FICO score through manual underwriting
Luckily, those who prefer not to use credit and find themselves with a zero FICO score can still obtain a mortgage by working with a mortgage broker who is willing to go beyond the automated option and use a manual underwriting process.
During a manual underwriting process, the mortgage broker will work to manually score data gathered from the applicant's financial history. This can include data such as a history of rental payments, records showing timely payments for utilities and mobile phone services, information regarding their employment history, household income, tax records, banking, and investment information.
If you are devoted to living a cash-based life style but worried that you will not be able to qualify for a home loan because of a zero FICO score, take time soon to discuss your options for manual underwriting with a mortgage broker in your area, such as Cornerstone Residential Mortgage.