How to Get a Mortgage If You Traditionally Don’t Qualify

One of the downsides of being debt free is that it makes you invisible to banks, making it harder to get a loan, and particularly a mortgage, in the future.

While more challenging, it’s not impossible if you learn more about how mortgages are approved and how you can still get a loan by working with real humans instead of just automated systems.

Being debt free means you are invisible to banks

In 2020, when I was ready to buy my third home, I was shocked to find out that I was being turned down for a home loan. Strangely, because I had paid off all $300,000 of my debt, including $72,000 in student loans and two mortgages, I didn’t qualify as a good borrower.

According to traditional banks, I was not a good candidate for a loan even though I had a net worth close to $1 million, including the fact that I am currently a paid home owner, because I became one of the top 10% Americans who are “invisible to credit. .”

According to the Bureau of Consumer Financial Protection’s Bureau of Research, in 2010, 26 million American consumers in the United States, representing about 11% of adults, were credit invisible.

Another 19 million consumers, or 8.3% of the adult population, had credit records that could not be scored under a commercially available credit scoring model. These records were evenly split between those with insufficient credit history (9.9 million) and those with no recent credit history (9.6 million).

I fell into the last bucket with no recent credit history. That meant that even though I had over 15 years of credit history, showing over 20 accounts I had managed during my adult life, because I had no current open debt accounts, my score wasn’t bad. It was blank.

When the banks searched my name, I did not have a FICO score attached to it, which was problematic since 90% of the most well-known financial institutions make their credit decisions based on this single measure.

What does your credit score measure if not your money management skills?

Homebuyers often confuse credit scores with an indicator of financial health, and that’s not always the case because this number doesn’t take other important factors into account.

Credit scores don’t take into account important factors like your income, work history, cash savings, property, and investments. Instead, your credit score measures your current relationship.

While your payment history and how long you’ve been making payments make up half of your credit score, the other half measures your relationship to current debts, including how much you currently owe, the mix of debts you have, and how often you apply for new ones. credit lines. credit.

I had thought that obviously since I had a payment history on all of my student loans and mortgages that I would be an obvious candidate for a loan. But it turned out that just the opposite was true.

Most big banks aren’t training humans to approve mortgages in detail

That’s when I learned that mortgage approvers at many large institutions don’t really know how to evaluate a mortgage application. Many use automated programs that analyze your loan application, rather than an actual human being, to decide (often within minutes) whether or not to approve a mortgage.

Because she had no debt and hadn’t used credit cards in over three years, the fact that she had no current debt made it seem like she had never had any open lines of credit. A customer service representative tried to explain to me that the reason the bank couldn’t offer me a loan was because I didn’t have enough experience.

All I was looking at was the first page of my credit report showing dashes where the numbers should be on my credit score. He assumed that I had never taken any credits and that’s why my score was blank.

I asked him to look at my credit history where he saw the years of bills paid off and he said he had never seen this before. I asked why I wasn’t qualified if I could prove that I paid two mortgages in full in the past. He couldn’t answer, and that’s when I learned a better approach.

Request a manual subscription and have an expert review your request

Manual underwriters perform a detailed review of your financial information to make sure you qualify for a mortgage. Even if you’re not credit invisible, you can still benefit from manual underwriting if:

That means you’ll have to spend a little more time collecting your personal data and organizing it for a real person to review. It also means that you may need to answer some more specific questions. Some factors they will look at include:

  • cash reserves
  • Other assets such as property or investments
  • Income and employment history
  • Debt-to-income ratio
  • Other financial responsibilities, including student loans, personal loans, child support, and any other recurring payments

Finding a manual subscriber will take longer as I went to three traditional banks that did not offer one. I hadn’t initially searched for a manual underwriter because I falsely assumed that most banks would offer it.

I finally found a lender who not only made the process simple and almost pleasant (my insurer was very kind). The experience made me feel even more confident that I was making a good financial decision because the subscriber was very thorough in his line of questions.

I also got a very competitive rate to what other banks were offering, dispelling the myth that you would have to pay more than go through an automated system. Even if you have good credit, I highly recommend working with a bank that adds a human touch.

By getting to know you as a person and not just a number, the right mortgage lender can help ensure you’re making the best financial decision for yourself, and not just maximizing your profits.

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