Step by Step: Get a Mortgage Without a Credit Score

Certified Mortgage Advisor
NMLS 1701021
October 10, 2020

Can buy a house with NO credit score, how?

Now 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 a credit score.

No credit vs. bad credit

So first we'll have to clear up if there's a difference between no credit and bad credit.

Totally no credit

So this loan is only 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. So this cannot be used to solve bad credit. So if you have, delinquencies or collection accounts, you can't use a loan like this in its 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. But if you have a lower credit score, you're going to have to use that lower credit score.

Automated underwriting

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 that there are two different types of underwriting. You have manual underwriting and automated underwriting. Automated underwriting is when software underwrites your loan file and that's a lot easier to pass. It's a lot easier to get approval.

Manual underwriting

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.

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.

Income and employment

A consistent income, consistent employment. You need to have funds to be able to close if you're bringing a down payment.

Property Requirement

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 the underwriter is going to manually analyze your payment history in place of credit.


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 those loan officers, they want you to be able to purchase a home. They make money when you purchase a home and get a loan. So they are on your side.

Talk to our loan officer

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 an answer for yourself in your mind. So take a moment, take a deep breath. 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.


So let's compare these two. So here traditional mortgage and manual. For traditional mortgages, this is with automated underwriting software. Traditional underwriting, on a regular mortgage. Then, we have a manually underwritten loan. 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 a 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. 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.

Purchasing power

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. 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.


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.

More documentation, longer timeline

Manually underwritten loans 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.

Level of anxiety

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 the 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. 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.

Credit is a story of how you manage your debt

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 the 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.

Credit references

So in place of a credit report, what you're going to do is get credit references. All this means is you're going to find a payment history that you've already made on other accounts that aren't debt.

Things that can prove you are not a delinquent payer

So normally for a manual underwrite, you're looking at three, 12-month, on-time credit references. 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.

Things you can't miss

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.

Primary residents only

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.


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 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%.

Down payment

Now, as far as the down payment, conventional requires 5% down. FHA requires 3.5% down. VA is 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.

You can Refinance

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.

Ask your lender if they do manual underwriting

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.

Pay your mortgage on time

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.

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.

Considering opening 2 credit cards with low balance

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.

Refinance when credit goes higher

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.

Talk with a loan officer
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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.