Financial expert Dave Ramsey doesn’t believe you should go into debt. And this is the case despite the fact that he recognizes that you will not have good credit score if you avoid borrowing.
Ramsey has made it clear that he thinks your FICO® score (the most popular and commonly used credit score) isn’t important, contrary to what most financial experts say. In fact, he says you ideally shouldn’t have a FICO® or other credit score. at all.
And he says you don’t need it to buy a house. But, is he right?
Here’s what Ramsey has to say about your credit score and your property
Ramsey doesn’t think you need a credit score to buy a home because “there are other ways to prove you’re paying your bills without requiring you to have debt or a credit score.”
On the Ramsey Solutions blog, it just suggests you look for a mortgage lender which does not use the traditional approach to determine eligibility to borrow.
“You can get a mortgage without a FICO® score as long as you find a company that still does manual underwriting,” he advised. “Manual enrollment isn’t complicated. It’s just the process of making sure you’re a human being who pays bills and has a job. They’ll check your income, employment, and payment history on things like rent and utilities. Sounds pretty simple, doesn’t it? That’s because it is.
If a mortgage provider offers manual underwriting, Ramsey explained that the lender will simply review other documents such as proof of rent payments or proof that you paid for your utilities, cell phone, insurance and your child care expenses on time. Lenders will then base their decisions on whether to borrow on this information rather than your credit score.
Here is the problem with this advice
Although Ramsey’s advice may seem good at first, there is a huge problem.
Not all lenders do manual underwriting. Many lenders are content Won’t do be willing to give you a loan if you don’t have a credit score or if your score is below a certain threshold. The industry standard is to score your credit, and mortgage providers generally don’t want to take risks and deviate from their standard scoring process when so much money is at stake.
So you will have a hard time finding a lender in the first place if you need manual underwriting. Then, once you do, you’ll have to jump through a ton of additional hurdles to get your loan. Even Ramsey acknowledged that “the first hoop will be documentation – lots and lots of documentation,” when pursuing a mortgage with manual underwriting. It’s much easier to ask a lender to simply check your credit score than to produce years of receipts showing on-time payments.
Then, once your lender reviews all of that and decides to approve you, you may still get a higher rate than someone with good credit simply because your unusual situation makes you a riskier borrower.
You don’t want all that hassle or the possibility of having to pay higher rates, so don’t listen to this advice from Ramsey. If you are considering getting a mortgage in the future, you should work on building credit today.
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