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How to Get a Mortgage with No Credit Score

It is commonly understood that you need a decent credit score in order to be approved for large loans, such as a mortgage. However this belief, along with many other beliefs about credit, is a myth. While it is generally much faster to be approved for a mortgage with a good credit score, it is possible to be approved even you have no history of credit, or no credit score. There is a different process used, called manual underwriting, when a person applying for a mortgage has no history of credit. Here is a brief outline of how this process works.

The first step is to talk to your bank or a mortgage agency to determine whether or not they have a manual underwriter on staff. Note that the FHA just recently updated the requirements for manual underwriting so the process may take some time. If you are planning on going through the process, start your conversations with your bank or mortgage agency early.

The underwriter will look closely into your history, bank accounts, current payments (rent, for example) and any other information relating to your finances or finance history. You will most likely have to provide a VOR (variation of rent) that will serve as a resource for determining your reliability of on time payments. The underwrite will also look at your debt to income ratio. This is meant for individuals who have a past of bankruptcy and therefore cannot use their credit score to apply for the loan. Another key element of manual underwriting is reserves. It is expected that you have 1-3 months of reserves (depending on your property) after closing. This is to ensure that you have an emergency fund to pay for the costs of the mortgage after closing.

Before beginning the process, as well as during, it is important not to move large sums of money around. It is also important that you don’t receive large sums of money. This is a red flag as it could indicate a personal loan. Try to keep your finances stable and your financial activity limited to necessary transactions. Also, be sure to have detailed records of any large purchases, expenses, or large sums of money you have received in the past few years. This will help the underwriter sort through your finances much faster and easier.

Talk to your bank or Mortgage Company  or go to www.your650score.com to learn more about the process of manual underwriting and the time it takes to complete the process.

Credit Score for Home Mortgage

If you are thinking about purchasing your first home you are probably wondering what type of credit score you need to be approved for a mortgage loan. This depends on the lender you go through and other factors as well, including your income, assets, and how big of a down payment you can afford. The following is some general information related to credit scores and home mortgages.

Large lenders often impose a minimum credit score requirement of around 620. This is fairly low, considering the average credit score in America is 761 and anything below a 650 credit score is considered to be a poor credit score. However qualifying for a loan is just part of the process. If your credit score is low, oftentimes your interest rates will be higher. Large lenders often charge higher fees for credit scores below 740, which get increasingly higher with each 20-point drop. Because of this, it is a good idea to work to improve your credit score as much as you can before applying for a home mortgage. You can start to do this by setting a budget and sticking to it, paying off your debts one at a time, and paying all of your bills in full and on time. If your credit score is low because you do not have very much credit history you can work to build your credit history before applying for a home mortgage loan. Start by opening up a credit card and put on only charges you can pay off each month. Pay your bill on time to start building a good history of credit payment. You can also build your credit history with other types of loans as well.

If your credit score falls below the acceptable score for mortgage approval you are not necessarily out of luck. The FHA (Federal Housing Administration) accepts some credit scores as low as 580, however it is a challenge to be approved. The good news is that if you are approved for an FHA loan, there are not additional surcharges based on your score. Be aware that less than four percent of loans approved by the FHA are to individuals with credit scores below 620. It is likely that the applicants that are approved with low credit scores also have a large income and a significant down payment for the home. This is another illustration of why it is very important to improve and maintain your credit score before applying for a home mortgage.