Blog – Mike Pfefferman

28

Mar

Mortgage

Can I Get a Mortgage Without a Credit Score By Using Alternative Credit History?

If you’ve been managing your finances responsibly but don’t have a traditional credit score, you may be wondering whether homeownership is still within reach. The good news? It is! While most mortgage lenders rely on credit scores to assess your creditworthiness, alternative credit history—like rent payments, utility bills, and other recurring expenses—can help you qualify for a mortgage.

What Is Alternative Credit History?

Alternative credit history consists of financial records that demonstrate your ability to manage debt and make payments on time, even if you don’t have a credit card or traditional loans. Some examples include:

Rent payments – A history of on-time rent payments can be a strong indicator of financial responsibility.
Utility bills – Consistent payments for electricity, water, gas, and even phone bills can showcase your reliability.
Insurance premiums – Paying for car, health, or renter’s insurance on time adds to your credibility.
Streaming or subscription services – Some lenders may even consider consistent payments for services like Netflix or a gym membership.

How Do Mortgage Lenders Use Alternative Credit?

Some lenders, especially those offering FHA, VA, and USDA loans, accept alternative credit data in place of a credit score. Instead of pulling a standard credit report, they may request documentation proving your payment history, such as:

Canceled checks
Bank statements showing recurring payments
Letters from landlords or service providers confirming on-time payments

Additionally, Fannie Mae and Freddie Mac now allow rent payments to be factored into credit evaluations when applying for conventional loans, making it easier for first-time homebuyers to qualify.

What Are the Requirements?

While each lender may have different criteria, here are some general guidelines to keep in mind:

A strong rental history – Typically, lenders want to see at least 12 months of consistent, on-time rent payments.
Three or more alternative credit sources – Having multiple payment histories helps build a well-rounded financial profile.
Stable income and employment – Lenders still evaluate your ability to afford a mortgage based on your earnings and job history.
Low debt-to-income (DTI) ratio – Keeping your total monthly debts (including the future mortgage payment) below 43% of your income improves your chances of approval.

Which Mortgage Programs Accept Alternative Credit?

If you don’t have a traditional credit score, consider these mortgage options:

FHA Loans – Backed by the Federal Housing Administration, FHA loans are ideal for borrowers with limited credit history.
VA Loans – If you’re a veteran or active-duty military member, VA loans offer flexible credit requirements.
USDA Loans – Designed for rural homebuyers, these loans allow alternative credit history for qualification.
Manual Underwriting on Conventional Loans – Some lenders offer manually underwritten loans, meaning a person (rather than an automated system) reviews your finances.

Tips for a Successful Mortgage Application

Keep records of payments – Save bank statements, receipts, and letters from service providers.
Use a rent-reporting service – Some companies, like RentTrack or Experian Boost, can help report your rent payments to credit bureaus.
Work with a knowledgeable mortgage lender – Not all lenders accept alternative credit, so finding one who specializes in this process is key.

Yes, you can get a mortgage without a credit score! By leveraging alternative credit history, demonstrating financial responsibility, and choosing the right loan program, you can achieve homeownership—even without a traditional credit report. If you’re unsure where to start, connect with a mortgage professional who can guide you through the process and help make your dream of owning a home a reality.

27

Mar

By Mike Pfefferman

Mortgage

Temporary and Permanent Mortgage Buydowns: How They Work

When securing a mortgage, borrowers have the option to reduce their interest rate through a mortgage buydown. This strategy can help lower monthly payments, either temporarily or permanently, depending on the type of buydown chosen.

1. Temporary Mortgage Buydown

A temporary buydown allows the borrower to pay a lower interest rate for the initial years of the mortgage, with the rate gradually increasing to the original agreed-upon rate.

Common Structures: A 2-1 buydown reduces the interest rate by 2% in the first year and 1% in the second year before returning to the full rate in the third year.
How It Works: The difference in interest payments is covered by a lump sum payment from the borrower, seller, or builder, which is placed in an escrow account and used to subsidize the monthly payments.
Benefits: Helps ease the financial burden during the early years of homeownership, allowing borrowers to adjust to new expenses.

2. Permanent Mortgage Buydown

A permanent buydown involves paying upfront discount points to permanently reduce the interest rate for the life of the loan.

How It Works: Each discount point typically costs 1% of the loan amount and can reduce the interest rate by approximately 0.25%.
Benefits: Offers long-term savings on interest payments and reduces monthly mortgage costs.
Ideal For: Borrowers who plan to stay in the home for an extended period and want to lock in a lower rate.

3. Key Differences

Duration: Temporary buydowns are short-term, while permanent buydowns last for the life of the loan.
Payment Source: Temporary buydowns are often funded by the seller or builder as an incentive, whereas permanent buydowns are typically paid by the borrower.
Cost vs. Savings: Permanent buydowns provide continuous savings, while temporary buydowns offer immediate relief with eventual higher payments.

Understanding the distinction between temporary and permanent mortgage buydowns can help borrowers make informed decisions to manage their mortgage payments effectively. Consulting with a mortgage professional can help determine which strategy best aligns with financial goals and long-term plans.

26

Mar

By Mike Pfefferman

Mortgage

The Difference Between FICO Score and Credit Score: How It Affects Your Mortgage and Rates

When applying for a mortgage, your creditworthiness plays a significant role in determining your loan approval and interest rates. Two commonly referenced terms are FICO score and credit score, which are often used interchangeably but have distinct differences.

1. What is a Credit Score?

A credit score is a broad term that refers to a numerical representation of a consumer’s credit risk. It is calculated based on various scoring models, including FICO and VantageScore, and is derived from credit report data such as payment history, credit utilization, and length of credit history.

2. What is a FICO Score?

A FICO score is a specific type of credit score developed by the Fair Isaac Corporation. It is the most widely used scoring model by mortgage lenders. FICO scores range from 300 to 850 and are calculated based on five key factors:

Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
Credit mix (10%)
New credit inquiries (10%)

3. How Do They Affect Your Mortgage?

Interest Rates: A higher FICO score typically qualifies you for lower mortgage interest rates, while a lower score may result in higher rates or loan denial.
Loan Approval: Lenders often have minimum credit score requirements, and FICO scores are a primary factor in the underwriting process.
Loan Terms: Your score can affect down payment requirements and loan programs available to you, such as conventional, FHA, or VA loans.

4. Key Differences

Scope: Credit scores can come from various models, while FICO is a specific scoring model.
Usage: Most mortgage lenders rely heavily on FICO scores for risk assessment.
Impact: Your FICO score has a direct influence on mortgage rates and loan eligibility.

Understanding the distinction between a FICO score and a credit score is essential when preparing for a mortgage application. By improving your FICO score, you can increase your chances of securing better loan terms and lower interest rates.