Getting a Mortgage With No Credit Score Through Manual Underwriting

Having no credit score can make getting a mortgage more difficult but it is still possible through a process called manual underwriting. As someone who lives debt-free and doesn’t use credit you may find yourself in this situation when applying for a home loan. Don’t worry – with some extra documentation and patience, you can still achieve your dream of homeownership. In this article, I’ll explain what manual underwriting is, when lenders use it, how the process works, and tips for improving your chances of getting approved for a no score mortgage.

What is Manual Underwriting?

Manual underwriting is when an actual person (underwriter) reviews your application and makes the decision to approve or deny your mortgage. This contrasts with automated underwriting where a computer program makes the decision based on your credit report and financial details.

Lenders typically use manual underwriting when:

• You have no credit score
• You have a thin credit file (not enough credit history)
• You’ve had past credit problems like bankruptcy or foreclosure
• Your debt-to-income ratio is too high
• You’re applying for a jumbo loan above conforming loan limits
• You have unique income situations like self-employment

The manual process takes more time and documentation but may improve your chances when you don’t meet automated underwriting requirements,

When Do Lenders Use Manual Underwriting?

There are several situations when a lender will manually underwrite a mortgage application:

No Credit Score

If you have never had credit or loans in your name, you likely have no FICO credit score. Lenders can’t rely solely on a credit score to assess your risk, so they’ll dig deeper into your financial history manually.

Thin Credit Files

Thin credit files occur when you have a credit report but very few accounts or a short history. For example, if you’re young and only have a few credit cards or loans so far. Lenders may need to manually review other documentation to fill in the gaps.

Past Credit Issues

Major negative events like bankruptcy, foreclosure, or loan modification require manual underwriting. The lender will want explanations and proof you’ve recovered financially.

High Debt-to-Income (DTI) Ratio

If your total monthly debt payments divided by gross monthly income exceed 45-50%, automated underwriting will likely reject you. Manual underwriting may approve you if you can show extenuating circumstances.

Jumbo Loans

Jumbo mortgages exceed conforming loan limits set by Fannie Mae and Freddie Mac, so they often require manual underwriting. This provides an extra level of scrutiny for large loans.

Self-Employment

Irregular income sources like self-employment or commissions don’t fit neatly into automated systems. Manual review helps account for those unique situations.

How Does Manual Underwriting Work?

The manual mortgage approval process involves gathering a complete picture of your financial situation for an underwriter to review. Here are the main steps:

Provide Documentation

Your lender will request various documents to verify income, assets, debts, down payment source, and overall ability to repay the loan. This typically includes:

• Bank statements
• Tax returns
• Pay stubs
• Retirement/investment account statements
• Documentation of assets like home equity and vehicles
• Explanations for credit report issues

Be prepared to explain large deposits or transfers between accounts. Gather everything upfront to speed up approval.

Review Credit Report

The underwriter will carefully examine your credit report line-by-line for any negative items. They may ask for letters explaining past issues. Limited credit history also requires scrutiny when documenting your willingness to pay debts responsibly.

Verify Income and Assets

Your income sources, employment history, and assets will face intense verification through your lender. This includes contacting employers for confirmation and documentation of bonuses, overtime, and other details not apparent on a pay stub. Asset statements also undergo review to ensure you have funds needed for down payment, closing costs, and reserves.

Analyze Debts and Liabilities

The underwriter calculates your debt-to-income ratio and also looks at other regular debts that don’t appear on credit reports. These include alimony, child support, student loans, and other liabilities. They want to see you can handle the new mortgage payment along with current obligations.

Appraise Home Value

The lender will order a home appraisal to determine the property’s fair market value. Low appraisals may require you to bring additional down payment or adjust the offer price.

Make Final Decision

Finally, the underwriter will issue an approval, denial, or request for more information if they need clarification or additional documentation from you. Respond promptly to any inquiries to move the process along.

Tips for Getting Approved

A manual underwrite offers more flexibility but isn’t guaranteed. Here are some tips to boost your chances:

• Request conditional approval – This shows sellers you’re qualified while giving time to provide more documentation to the underwriter.

• Explain credit report items – Be ready to clarify any red flags like collections or late payments.

• Get co-signer – Adding a co-signer with strong credit can give you a better shot.

• Make larger down payment – At least 20% down shows lower risk.

• Pay down debts – Reduce credit card and loan balances to lower your DTI.

• Build non-traditional credit – Show timely rent, utility, phone, insurance payments.

• Document savings habits – Bank statements proving regular deposits help.

• Work longer at job – Underwriters like job stability.

• Choose right lender – Some are more manuals underwriting friendly.

The Bottom Line

It is possible to get approved for a mortgage with no credit score through manual underwriting. While it requires closely examining your situation versus relying on a credit score, a manual review allows lenders to accommodate unique cases. Be ready to provide extensive documentation, explain any credit issues, and illustrate financial responsibility. With some work upfront, you can still achieve homeownership without established credit history through manual underwriting.