Debt & Mortgages

10 Sep Debt & Mortgages

In case you missed it, we just bought a house! Here’s a fun little story for all you Dave Ramsey fans out there.

As most of you know, we live by many of Dave Ramsey’s principles as outlined in Financial Peace University. (Quick plug: there’s a class going on right now at Christ’s Covenant Church. Wednesdays 6-8pm. Go!). Dave’s program is most well known for the “Beat Debt” lesson. Though the program goes through all aspects of personal finance, this one hits home the hardest with most people. At least, it hit home for us. Dave teaches you to hate debt and get rid of it all. Yes, all. No credit cards, no car payments, no furniture to pay off, no student loans, etc. We listened. We paid off nearly $60,000 worth of debt. You can read that story here.

We have had many people question not having at least a credit card. The typical reasons for having a credit card are the rewards and building credit. Dave’s philosophy on the whole thing is, “Why worry about a FICO score if you aren’t going to borrow money?” Though Dave will always recommend paying cash for a house, the home mortgage is the one debt that he will not yell at you for. His stipulations are a 15-year mortgage, 20% down, and no more than 25% of your take home pay. With this advice in mind, we sought to purchase a home.

Having only been debt free for two years, we still had a credit score. And because we had so much debt and paid it on time, the scores were great and gained us access to a pre-approval for our mortgage. The story gets interesting when we take the signed purchase agreement to the bank to set a closing date and they have to re-pull our credit scores because it has been past 90 days. Our loan officer comes back with these words, “I’m sorry, we can’t give you this loan. Your credit scores have dropped off.” She then recommend opening a credit card and waiting 90 days for our scores to come back. The problem was we didn’t want credit cards and couldn’t wait 90 days for our scores to come back. We searched for other options.

The first option we looked into was a company that Dave recommends to people just like us–people without a credit score due to inactivity. This company will do something they call “manual underwriting.” Manual underwriting determines your ability to pay back a loan by things other than a credit score–namely 2 years of rent payment on time (check) and two years of 3 other monthy bills on time (bummer). Because we have been living “on rice and beans” as Dave would say, we could only come up with two monthly bills (electric and internet). We don’t have a water bill, gas bill, trash bill, or cell phone bills, and we pay our insurances annually. At this point my heart sunk a little as we thought we may not be able to purchase a home after all. I toyed with the idea of getting a credit card as recommended, but after much prayer, we decided to continue searching. I called several banks, all of which said basically the same thing, “get a credit card and wait for your scores to come back.” We were also offered an Adjustable Rate Mortgage with the idea that after 6 months we could refinance to a fixed rate after our credit was built back up. Not wanting to take the risk of the ARM and not wanting to incur the closing costs a second time, we declined.

Not liking these options, we prayed some more and received a call back from a small local bank that our previous loan officer referred us to. This bank said they might be able to help. They are able to give out loans based on a committee, which means that they look at all the information and each individual. We had a meeting, and within 24 hours we were approved for the loan. Praise the Lord!

So I guess it really is possible to get a mortgage without a credit score!

– James