Why Dave Ramsey Says You Can Get a Mortgage Without a Credit Score

Dave Ramsey is one of the biggest proponents of living debt-free. Although his company acknowledges that the home loan is the least of all financial evils, he promotes taking out a mortgage without a credit score at every opportunity.

This eyebrow-raising stance sounds infeasible for most, and rightfully so. In societies where consumer credit is pervasive, the credit score is the most powerful bargaining chip to borrow funds at the lowest interest rate. While Ramsey’s advice may seem crazy to the average American homebuyer, it’s practical for the millions FICO doesn’t deem creditworthy.

Manual Underwriting Is How You Can Get a Mortgage Without a Credit Score

When Ramsey says that you can get a mortgage without a credit score, he means that you can go through manual underwriting to qualify for a home loan. This mortgage application process involves a human review of the risk you pose to the lender rather than a proprietary algorithm underpinning a FICO credit-scoring model.

Most mortgage programs use automated underwriting, but there are exceptions. However, manual underwriting may be necessary when the loan amount is too large or when the borrower’s debt-to-income (DTI) ratio is too high. Manual underwriting may be required or permitted for conventional mortgages and government-backed home loans.

Anyone can purposely approach a lender specializing in manual underwriting to take out a mortgage without reviewing three different FICO scores, but it may be the only choice for those who are credit invisible and for those with thin credit files.

In 2022, TransUnion reported that 8.1 million adults were credit unserved and another 37 million were credit underserved in the United States. Unserved individuals are those who’ve never opened a traditional credit account, such as a credit card, charge card or personal loan. Undeserved persons are those who’ve only used one type of credit, been an active credit user for at least the past two years and maintained fewer than three open traditional credit accounts.

Being credit unserved or underserved makes it virtually impossible to qualify for a home loan through automated underwriting. That’s because the proven FICO credit-scoring models most mortgage lenders use only account for traditional credit data. Manual underwriting is essential to demonstrate your ability to repay hundreds of thousands of dollars over 10 to 30 years based on your history of paying bills that your credit reports don’t reflect.

Pros and Cons of Taking Out a Mortgage Without Credit Scores

Here are the advantages and disadvantages of manual underwriting.

Pros		Cons
Access to credit	Manual underwriting enables you to borrow the amount you need to buy a house when you’re not creditworthy in the traditional sense.	Higher costs	Applying for a mortgage without relying on a credit score usually requires a larger down payment and more expensive interest.
Holistic representation of financial responsibility	This approach lets you prove that you fulfill your financial obligations, even if you don’t use revolving, open, or installment credit.	Lengthier process	Getting preapproved manually entails more extensive paperwork and a more rigorous assessment, which typically takes days rather than minutes.
		Fewer lender options	The mortgagees that do manual underwriting are in the minority, limiting your ability to buy a house wherever you want.

How to Get a Mortgage With No Credit — 6 Practical Tips

If you want to know how to get a mortgage with no or little traditional credit data, here are six tips to increase your chances of approval.

1. Look for a House in a Buyer’s Market

In a buyer’s market, the supply of housing exceeds demand, helping drive home prices down. Less competition allows you to negotiate with sellers more effectively and ultimately snag a better deal.

The more affordable the property price is, the lower amount you need to borrow and the less risky you appear to lenders.

2. Pay All Your Bills on Time

Nontraditional credit data is the subject of manual underwriting. It refers to everyday bills you regularly pay but don’t appear on credit reports, such as your rent, utility bills and streaming.

3. Be a Diligent Recordkeeper

Your creditworthiness is only as high as your records can prove. Underwriters often focus on more recent payment and employment histories.

Keep, organize and present all required documents, such as relevant bills, pay stubs, bank statements and tax returns, to paint a clear picture of financial responsibility.

4. Avoid Switching Jobs

Judging whether you qualify for a mortgage without the aid of credit scores is enough of a gamble. Showing that you can stay gainfully employed at a single organization inspires confidence in lenders.

5. Increase Your Regular Income

If you prefer manual underwriting to the standard automated one, you probably have minimal debt in your name, so a high income keeps your DTI ratio 36% or lower or whatever is a mortgage program’s maximum.

Moreover, having considerable earnings helps improve perceptions of your ability to repay thousands of dollars in monthly mortgage payments and makes it easy to save.

6. Grow Your Cash Reserves

Risk-averse lenders may demand evidence of substantial savings — an emergency fund of sorts to ensure that you can continue paying your mortgage payments for a couple of months if you lose an income source.

Only liquid assets qualify as cash reserves. You have to season them for a reasonable period to prove that they come from legitimate sources and you can manage your living expenses without touching them.

Is Getting a Mortgage Without a Credit Score Worth It?

The question isn’t can you get a mortgage without a credit score — it’s should you take this route when you have other options? Asking for manual underwriting is swimming upstream. The downside generally outweighs the upside, no matter how you slice it and how much you swear by Ramsey’s philosophy.

The reality is that FICO scores are the standard for creditworthiness, and using traditional credit products is a small sacrifice to qualify for a mortgage and get more favorable terms. If you can pay your non-debt-related bills in full and on time, you can be responsible enough to handle charge cards, multiple credit cards and occasional smaller loans without overextending yourself.