Do You Need a Credit Score to Get an FHA or Fannie Mae Mortgage?
We sometimes get stellar borrowers who have no credit scores for a variety of reasons. They might be “Dave Ramsey followers” who believe in no debt, they might be very young, or they might be from another country, so they have no U.S. credit established.
We can still get these borrowers excellent mortgages in most cases via a “manual underwrite.”
A manual underwrite is the opposite of the “automated underwrite” that we use to get 99% of our borrowers approved.
A manual underwrite is really just an old-fashioned underwrite like all lenders did in the “olden days” (1980s and prior).
These underwrites require a careful analysis of employment, assets and income via verifications and substantial documentation – and they often require lower debt ratios, more “residual income” (leftover income after all payments are made), a smaller increase in the borrower’s housing payment (known as “payment shock”), and/or extra “cash reserves” after close.
BANKRUPTCY BAILOUT LOANS: We have been doing a lot of bankruptcy bailout loans lately for borrowers in Chapter 13 bankruptcy – and ALL of those require manual underwrites because of the credit issues. And yes, borrowers IN Chapter 13 can get FHA mortgage financing.
ALTERNATIVE CREDIT: Manual underwrites sometimes require “alternative credit” too. Alternative credit can be a record of on-time payments for rent, utility bills, cell phone bills, and layaway payments. For borrowers from other countries (like Canada), we can sometimes use foreign credit reports too.
What If a Borrower Just Landed a New Job?
As a quick reminder, we can approve borrowers immediately after they land a new job too – even before they get paid a penny – as long as they are salaried, and we can get a copy of the formal offer letter from the employer.
It is not always necessary for us to obtain a paystub prior to closing. Ultimately, it comes down to they type of pay and their confirmed start date.
What If Borrowers Move from W2 to Self-Employed?
If the new job is a self-employment or 1099 gig, borrowers will need to wait at least one year (in some cases) or two years (most cases) before they can qualify for a Fannie Mae or FHA mortgage. Mortgage lenders will need to see at least 12 months of self-employment income declared on tax returns.
This is because lenders want to verify that those borrowers have established business viability and an income stream.
Non-QM Loans = Exception to All of the Above
As a final reminder, Non-QM Loans provide exceptions for everything I set out above. The interest rates and down payment requirements for Non-QM loans are usually higher though.
