Home > Blogs > Colorado > Denver County > Denver > How to Get a Mortgage without a Credit Score
13,677 views

Patrick Murray's Blog

By Patrick Murray | Agent in 80211

How to Get a Mortgage without a Credit Score

Here are the alternative routes to approval.

How to get a mortgage without a credit score (© OJO Images/Getty Images)

© OJO Images/Getty Images

MSN Real Estate

For many homebuyers, establishing credit came naturally once they began working, applied for a credit card, took out a car loan or paid back student loans. But what about potential homebuyers who don't have a credit score, either because they are averse to credit cards or have yet to build up a substantive credit history? Can they still apply for a mortgage?

The answer is yes, but "it's exceedingly difficult to obtain a mortgage without a credit score," says Tim Ross, president and CEO of Ross Mortgage Corp. in Royal Oak, Mich. "Lenders use automated underwriting systems that base a loan decision on certain criteria, including a credit score. But there are some nontraditional sources that can be used for credit verification."

Mortgage lenders typically require a credit score of at least 620 or 640 to even consider an applicant for a loan. (Bing: How many credit scores do you really have?)

Whether you prefer not to use credit cards, are new to this country or are simply a younger borrower who hasn't built up enough credit history, there are some alternative sources that mortgage lenders can use to determine your credit risk.

While most lenders require three or more sources of credit, Clint Madison, a senior mortgage banker with Envoy Mortgage in Walnut Creek, Calif., says, "I've worked with borrowers who have a slim credit file and been able to get them approved for a loan. The first thing we look for would be 12 to 24 months of canceled checks or verification from a landlord of on-time rent payments."

Alternative sources of credit
Here are several other items that can be used for nontraditional credit verification, Ross says:

  • Utility bills for gas, electricity or water, as long as they are paid separately from your monthly rent.
  • Phone and cable bills.
  • Car insurance, renters insurance, life insurance or medical insurance payments, if they are not paid by payroll deduction.
  • Child care or school tuition payments.

The more evidence you can provide that indicates a history of on-time payments, the greater your chances of qualifying.

"You need at least 12 months and sometimes as many as 24 months of payments to prove your creditworthiness," Ross says. "A bigger down payment offsets your credit risk, and so does your job stability, your cash reserves and a high income in relation to your debts."

Credit history matters
The reason for your lack of credit history will also affect your ability to qualify for a loan.

"If you're living with your parents and have yet to establish any credit, it's pretty much impossible to get a loan unless your parents are willing to co-sign for you," Madison says. "The parents will need a credit score at a minimum of 660, and you'll need to have at least two months, or maybe as much as six months, of principal, interest, taxes and insurance payments in cash reserves in the bank."

You may not know your true credit score

Even consumers who have a credit history long enough to produce a score still need alternative sources of credit when applying for a loan. The Consumer Financial Protection Bureau recently released a study that showed there are often discrepancies between the credit score given to a consumer and one reported to a lender.

"This study highlights the complexities consumers face in the credit-scoring market," CFPB Director Richard Cordray said in a news release. "When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision."

The problem, Madison says, is that borrowers are set up for false expectations.

"They may either be expecting to qualify for a better rate than they do, or they may lose out on opportunities for which they don't believe they will qualify, when in reality they can," he says. This is why having alternative sources of credit, which can help prove your ability to repay a loan, is important.

Slide show:  What makes you unmortgageable?

Establishing credit
Ross says it takes just six months of credit-card usage to generate a credit score, but lenders would also need other sources of credit in addition to your six-month-old score.

"Using alternative credit doesn't change someone's credit score, so if your score is low, all you can do is let time pass while you do the right thing over and over again," Madison says.

It's especially important that prospective buyers with thin credit consult with a mortgage lender, Ross says. A lender can provide them with a plan to follow to improve their chances of qualifying for a mortgage.

By Michele Lerner of HSH.com

See Direct article at:  http://realestate.msn.com/how-to-get-a-mortgage-without-a-credit-score

Patrick Murray
HomeSmart Realty Group
(303) 881-1333
PMBRKR@aol.com
www.selldenver.net

Comments

By Alex Standt,  Wed Apr 10 2013, 07:54
This article was awesome!! Thank you. Being fairly new to the credit repair and mortgage shopping arena I am constantly trying to gather as much information as possible to try and keep myself headed in the right general direction. Spending some time on this post has actually given me a lot of great points to think about. In my recent research I have also been able to find some useful information related to this topic when I Googled the credit locker university. Thanks again!
By Alex Standt,  Mon Apr 15 2013, 07:37
Here is the link to the University I was talking about, they have a bunch of information on credit. http://mycreditlocker.com/blog/7-Credit-Locker-University
By jake.renner,  Mon Dec 30 2013, 07:37
For me, it was a lack of credit along with several errors reflected on my credit report. I wasn't real comfortable with the idea of paying someone to dispute the errors for me, so I found an organized way to do it myself. I was able to get started when Googled 'credit software'. Pretty easy stuff really.

POST
 
Copyright © 2014 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer