77. How to Secure a Mortgage with Manual Underwriting

In this episode, host Laura Sexton shares her journey of buying a home in Southern California despite having an indeterminate credit score. They challenge the conventional reliance on credit scores and emphasize the importance of maintaining a positive net worth. The episode offers practical advice on securing a mortgage through manual underwriting and stresses a holistic approach to financial health.

In this episode we’ll discuss:

.     Manual Underwriting for Mortgages

.     Focus on Net Worth Over Credit Score

.      Comprehensive financial health

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Transcript

Laura: 0:46

Hello and welcome to the Accelerate Your Legacy podcast. I'm Laura Sexton, your trusted financial coach and money mindset specialist. Join me as we explore the world of money and money mindset while also paving the way for a lasting legacy that extends far beyond money. Together we'll eliminate stress, amplify freedom, and ensure you stop paying for your past so you can start saving for your future. If you're seeking peace in your finances, more margin in your budget, and a legacy that inspires generations to come, you're in the right place. Hey, accelerators. I wanted to talk to you today because I am in the process of buying a home in a way that people say can't be done. Well, first of all, I'm buying a home in Southern California, which feels pretty much impossible, but that's not the impossible part that I'm talking about. What I'm talking about is the fact that I have a Indeterminate credit score. I was going to say a 0 credit score, but technically it's not 0. It's never 0. Technically, it can go down to 400 and then it just kind of falls off. So I have a A weird credit score situation. So how in the world could I possibly get a mortgage? We live in a society where debt is marketed to you over and over and over and over again. We live in a society where the credit score is the be all end all that people are planning for. And I just don't like that. I don't like the idea of chasing around a number. That somebody else has on their files, as opposed to chasing around a number that I have on mine. And what I mean by that is my net worth. If you sit down and calculate what your net worth is, it's what you own minus what you owe. So, if I had a mortgage, and let's say I bought a median house out here, which is going to be around 800, 000 dollars. Yes, I know Where we live is insane, but I had an immediate home is 800, 000. I put down 20%. That's 160, 000. The net worth on that home, I own an 800, 000 asset, but I owe 640, 000. Do you see where I'm at there? That still leaves me a positive$160,000 net worth on the home. We usually call that equity. I'm starting out. Yes, it's 800,000 minus the six 40 that I owe that leaves me a positive$160,000 net worth. Or when we're only talking about the home that's equity. You see, it's very important to me to have a positive net worth. And that's because when I started my financial journey, my net worth was negative 370, 000. I had a couple of cars that had some money that added into our negative 375. It's important to me to be positive net worth because I want to be a person that's never in debt. I never want to be so far upside down that I cannot get myself out of whatever situation I'm in. You see, that's. That's freedom. And some people say, you shouldn't talk about financial freedom because that sounds really woo woo. And maybe it does. Maybe it does sound that, but that is not where I'm going here. I'm talking about that feeling of independence. I'm talking about ownership. I'm talking about control, and for a person that sometimes suffers from this need for control, and sometimes that can overtake my life in many, many different ways, I need to be able to control the situation. I need to know beyond a shadow of a doubt that I'm good, and that means that I'm required in whatever purchase I make to make sure that my net worth remains positive after making the investment. People tell me I can't get a mortgage because I don't have a credit score. I have friends that are real estate agents that do not understand how this works because they never have to deal with it. They never have to go through it because everybody worships at the altar of FICO. Everybody just uses a regular traditional loan, but I don't do that. So, I want to encourage you, my dear Accelerator, to shift your mindset away from solely focusing on the credit score. Your money situation is holistic, it is your whole person. Your financial health has to do with, yes, where your money is in the bank, but it also has to do with how it sits on your heart. Does money give you stress and anxiety? If it does, we need to adjust that so that money gives you peace. When we are constantly chasing a credit score. We are playing somebody else's game. We have no control over the number that shows up on our credit report. The other day, somebody had posted in a Facebook group that they had their credit score had dropped 20 points, and they couldn't figure out why they were like, haven't changed what I've done. I haven't nothing has changed. I don't see anything showing differently on the credit report. I don't understand what happened. And so you get everybody commenting, oh, you know, types of credit usage of credits. You put more on the card. Did you pay it off too soon? And there were hundreds. Of people trying to give this person advice on how to adjust their credit score. And I just responded. This is exhausting. Are you tired of playing their game? We're focusing on the credit score. The person had changed nothing. They hadn't changed what they do and do not put on the credit card, how many credit cards they had. Nobody had pulled their credit. There wasn't anything fraudulent or delinquent on their credit report. They could not, for the life of them, figure out what had happened. If anything, it should have gone up because the length of all of their debts had extended, but no, went down for no reason. Can't figure it out. If you were solely focusing on the credit score, you were playing somebody else's game, but if you focus on your net worth, you are the only 1 that can make. Dramatic changes there. Yes, if you have money in the stock market, the stock market going up or down will have some effect on it. What you put, in your savings rate, the amount of money that you put in every month, that is up to you. That statistically has more to do with what your outcome will be than the ups and downs of the stock market. You see, a person that puts in a large amount of money one time is not going to have the same results as a person that puts in a little bit every single month. It's amazing because that doesn't seem to make sense. If I put in 100, 000 dollars and then never touch it, I expect it to make more than you if you're putting in a 1000 dollars a month, but time and continued savings rate will end up having you above me every time. So, if we're talking about securing a mortgage, but doing it without a credit score, how do we do that? Well, 1st of all, you have to do manual underwriting. Not all banks can do this. In fact, most big banks are like, no. Won't do it because their only concern is your credit score. They are not looking at anything other than that. They will look at how much you have for a down payment, the total of the mortgage and then your credit score. They don't care if they're over leveraging you. They don't care that they're allowing you to purchase a home that is double what you should have. They will approve you on a loan up to 50 percent of your monthly income. And that is a recipe for disaster. You don't want that. You have to be smart. So using a smaller bank, using A place like Churchill mortgage, which specializes in manual underwriting. That's what it's called. That's what they used to do before end of the 1980s. When FICO came out, they used to do manual underwriting where they would look at the amount of money you have in the bank. They look at your current rental history, they look at how well you've done at making payments and that my friends. Is what you are going to have to do. If you were like me and you have no credit score, so do not come at me and say, well, I need the credit score because how will I ever get a mortgage if I don't have it? Because I am living, walking, talking proof that I can get approved for a mortgage. I can get approved for a pretty big mortgage with manual underwriting. What are the parts on my side that allow me to do this and do it? Well, 1st of all is savings. I've been working on increasing my savings rate, but also increasing the amount that I have in my savings account, liquid cash that I can use towards a down payment. I'm coming in with a 20 percent down payment on a house. Do you have to have 20 percent down? No, you don't. However. Because we're getting such a large loan, PMI would be a massive increase on our monthly payment. I do not have an additional 600 a month to put towards PMI when 600 a month could be going towards the principal. I would much rather have it go there. Making sure that you have investments, you were showing that if push come to shove, you would be able to pull out money from this investment. If you can show them that if you're like, look, if I had to pull money out, if I needed to make like, a 300, 000 dollar payment, look at this money's over here. Look at me. Look at me over here. I got this. The other thing that you need to leverage is your rental history. When you go to have manual underwriting done, they're going to ask for 2 years of rental history to make sure that you haven't been behind on payments to make sure that you have been able to keep up with. This one important payment that happens at the beginning of the month. They also want to see two other forms of payment history. Guys, this is the same thing that happens when they do your FICO score. They want to make sure that you have been doing this for a very long time. They want to make sure that you've been making your payments on time, that you haven't been late, that you haven't been defaulted on any of your payments. So, I'm going to go in with my water bill and my phone bill, right? I need to go in with things that have been on direct deposit and I also need to go in with things that have not been on direct deposit. I guess it's not my water bill, it's my electric bill. My electric bill, I do not have on direct deposit and I go in and I pay it every month. Manually, why? Because I want to show them that over the last 6 years, I've not missed a payment. I have not been late. It's very important to show that. I can make payments even when I'm having to do it on my own without the assistance of a robot. Well, look, this is a collaboration, right? Between the borrower and the lender. So we have to be really smart. We have to find people that care about you as a person. Not just as a number on the paper. Big banks don't care about you. I hate Chase Bank with the fire of a thousand suns, can't stand them. Bank of America is dead to me. Wells Fargo, do not get me started with how awful Wells Fargo is. Okay? I will only use local credit unions From now on, I'm not doing it. It's absolutely ridiculous. No, no more. No more of that. You don't need that either because those places don't see you as a person. I walk into my credit union. They're like, hi, it's so good to see you are. How are you today? How are your kids? They know me and I want that for you too. You are not just a number. You were not just a score. You are a person and you are important. When you do decide to secure your mortgage, you need to remember if there are extra things you need to pay for. You're going to need furniture to fill the space. You could possibly need a new roof or new HVAC. These are things that you need to factor in. Make sure that you have a savings fund for those. Moving expenses. You are getting too old to move everything yourself. Go ahead and hire some movers. Save for that so you can do that. If the home needs any updates or repairs, we're not taking out additional loans. We're not taking out a HELOC to get the updates and repairs done. You're either going to live with it for a while, or you're going to have the cash separate from the down payment to make sure that you're paying that because if you don't, if you walk into the house and you have, say, you put down 20 percent and then you take a lock, you are now over leveraged on that home. You were spending too much on home expenses and you were. Very quickly, almost immediately house poor. And you don't have enough to do all of the other things that you wanted to do, because you decided to take out a HELOC, which has a much higher interest rate than your actual mortgage does, just because you weren't willing to be patient, or you weren't willing to live in something that isn't exactly perfect. Your home. Is part of your long term financial plan having a home that is completely paid off is just that's the ultimate status symbol. At least it is to me and a lot of the people that I chat with. But your long term financial plan also includes continuing to budget. Always saving always investing. It also includes being really generous. When it is time to be generous, I would love for you, once you're out of debt, I would love for you to put a generosity category in your budget. If it's beyond the tithe, like, I have a tithe that I do, we give to a specific missionary that I was friends with. He was actually my 1st crush. His mom and my mom were best friends and he was the 1st boy that I was like, he's so handsome. Now, he's a missionary and he is doing amazing, amazing work with his wife and his three kids. We donate to their cause to keep them moving forward and to keep them from having to struggle. But I also want to do more giving you guys. I haven't said this in a while, but my, my goal is to have the business be able to buy a single mom, a car. My goal is to have my business be able to fund somebody's adoption. One of the coaches that I'm currently coaching, she has a goal to give 10, 000 to a family of six whose house burned down this year. She's like, I'm going to have my business pay 10, 000 towards their home repair. Say lost everything. Your long term financial plan, budgeting, saving, investing, outrageous generosity and sustainable home ownership. That means not going out too far. Not having a home payment. That is too big for you and what you're doing monthly. Make sure that you are in a position to win and have your home be part of your net worth a positive part of your net worth. You can buy a home without a credit score. It is completely possible. Is it easy? No, you have to be more patient. You have to put in more time and effort. You have to be completely debt free so that you don't have a credit score. You either want to have a really good credit score or no credit score when you're buying a home because if you're anywhere in the middle, you're going to have an increased interest rate. Oh, that's right. I was going to tell you buying a home with no credit score, proving my savings, my down payment, my investment, my rental history, my payment history, all of those things. I get the same interest rate as somebody that has an 850 900 credit score. The only difference is there's one extra piece of paper that I have to submit. Where I prove here's my bank account with this money. Here's my investment account with this money. Here's my rental history. I have to do 1 extra step. People that tell you it can't be done because it's harder or because you'll have to pay more. No, none of that is true. Don't let these people steal your hope. They don't want you to win because they're not winning or because you winning takes money out of their pocket. They're only out for themselves. I'm here to championyou U and tell you that you can do it, whatever it is you want to do in life, you 100 percent can get it done. Do not allow yourself to talk yourself out of being hopeful, being thoughtful, and making stuff happen. You're worth it, Accelerators. Now go out and make a difference. Thank you for investing your time with us today on the Accelerate Your Legacy podcast. Remember, your legacy isn't just measured in dollars and cents, but in the tools, habits, mindset, and reputation you leave behind. Don't just listen to the show, but take action on what you've learned. Share this wisdom with a friend who can benefit and help us spread the word by rating and reviewing the podcast. For questions or encouragement, reach out to me on Instagram at Accelerate Your Legacy or explore the resources listed in the show notes. I will be back with you next week. Until then, build your legacy with intention.