Dave Ramsey Says You Don’t Need a Credit Score To Buy a Home — Here’s How
To buy a new home, you usually need a few things — a competitive offer, a good realtor and oftentimes a solid bank that can lend financing. But one thing you may not need is a credit score. At least, that is, according to financial expert Dave Ramsey and some of his trusted colleagues.
In an April 10 tweet, Ramsey shared a post from fellow money master (and cohost of “The Ramsey Show”) George Kamel. Ramsey wrote in the caption: “To anyone who still thinks you need a credit score to buy a home, George explains exactly how to buy WITHOUT one.” It would seem counterintuitive for a bank to lend someone a huge amount of money without knowing if they are a responsible borrower, but Kamel refuted the idea that you need a credit score to get a mortgage. In fact, he said, he did so himself.
Kamel’s video (the first installment of his new YouTube channel) told more. He started with a rundown of how “crazy” the housing market has been the past few years, boiling it down to an issue of supply and demand as there are more eligible homebuyers wanting to secure a home today than even in 2008. And that has caused home prices to “skyrocket,” he added.
But while buyers can’t control prices, they can control how we get the keys to a new home.
Kamel then delved into the idea of a manual underwriting process, or a “no score loan.” As opposed to an automated underwriting process in “which robots and computers decide if we’re going to get a mortgage based on credit history,” Kamel explained, manual underwriting means “a real person looks at your real financial situation.” He equated it to a deep investigation into a person’s ability to repay debt, using data like your W2s, rent history, tax returns and regular, ongoing monthly payments.
Kamel did warn the process takes a bit longer and requires a ton of paperwork — but could be worth it for someone who has no credit history. He also advised that you’ll need a solid down payment: at least 10% to get a good interest rate and 20% to get the best rate as well as avoid the need for private mortgage insurance. Furthermore, a good down payment will make the loan you take out appear less risky to the financial institution lending the money.
Another big tip Kamel offered is going for a 15-year fixed loan in order to get out of debt quicker (keeping with the no score theme) while saving “up to six figures” on interest rate fees. It’s wise to keep the mortgage payment below 25% of your monthly income, he added.
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In fact, Churchill Mortgage, who Kamel endorsed in the video as an institution that proves you can still get a great interest rate without credit history, hosts an article on their website explaining why they “celebrate” no credit score loans. “Being debt-free is a big deal and should be celebrated!” the article claims. “At Churchill, our Home Loan Specialists are professionally trained to help you get a smarter mortgage that can be paid-off quickly, so you can return to a debt-free lifestyle as soon as possible.”
Of course, Kamel pointed out there is a big difference between a “low” credit score and “no” credit score, the latter having no bearing on how you manage and pay back debt.
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