When you apply for a mortgage one of the very first things you will need to do is give your social security number so your broker or bank can pull your credit.
What if your credit is terrible and you don’t want your credit to be pulled?
In all honesty it is very unlikely that you find a lender willing to fund a mortgage without your credit being check, although there are a few exceptions to this rule. Your credit score is not the only, nor the most important factor in determining if you qualify.
Lenders and banks understand that some people with a stronger financial portfolio may have poor credit. (stronger in the sense that you are able to comfortably afford your mortgage payment.)
It comes down to risk for lenders. If you can show that even though your credit is poor you have the means to make your mortgage payment every month you may be able to qualify for a refinance.
If you have missed a mortgage payment in the previous year or two it is unlikely you will qualify because this dramatically weakens your position. You want to show good payment history, strong monthly income and it is very important that you have money in reserves. Which simply means money in savings, a liquid retirement account or something similar.
If you can show the lender you can comfortably make the payments and are a low risk borrower you may be able to refinance with less than stellar credit.
Here is a break down of the important factors when qualifying for a mortgage.
- DTI (Debt to Income) – If your DTI remains under 30% it shows you earn enough money to comfortably make your mortgage payment. The lower the better.
- LTV (Loan to Value) – The lower the Loan to Value on your home the stronger it is. If you only owe 70 or 75% of your houses value you become lower risk.
- Income – Income is a main factor in determining your DTI.
- Assets – If you can show 6 months of assets, this will really strengthen your file tremendously. Assets, particularly liquid assets, help show that even if you lose your job or run into financial difficulties you can still make your mortgage payment for a number of months.
- Payment History – A clean mortgage payment history (meaning you have no 30 day late payments) shows you are a trustworthy borrower.
In conclusion if you can show strength in the other areas of your mortgage than the credit score factor may be minimized or eliminated.
Some people never even build credit and literally have no credit, but can still purchase a house. This is because these other factors are strong. Plus in this case if we are looking to refinance the fact you already own the home helps tremendously.