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Need Mortgage Help-No Credit Score-Contract for Deed Refinance
Subject: Mortgage inquiry — no credit score, contract-for-deed refinance
Hi,
I’m looking to refinance a contract for deed into a fixed-rate first
Mortgage. I have no credit score — about 20 years with no loans or
Credit cards, so my reports come back unscoreable.– Property: 105 Oak St NE, Brownsdale, MN 55918 (my primary home)
– Contract-for-deed payoff: $25,879 — paying $600/month since 2017, never missed
– Want: $40,000–$50,000 fixed-rate first mortgageCan you tell me:
1. Do you manually underwrite borrowers with no credit score?
2. Can you pay off a contract for deed as a refinance?
3. Is a $40,000–$50,000 loan okay on your end?
4. What alternative-credit documents should I send (payment history,
Utility bills, bank statements)?-
This discussion was modified 2 weeks, 6 days ago by
Hector Munoz.
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This discussion was modified 2 weeks, 6 days ago by Hector Munoz.
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This discussion was modified 2 weeks, 6 days ago by
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1 Reply
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Here’s the straight answer to all four of your questions, specific to your situation in Brownsdale, MN.
1. Manual underwriting with no credit score (yes, that’s possible), but you have to find the right lender.
This is the single most important gate in your file. The vast majority of lenders will run you through an automated system (Fannie Mae’s Desktop Underwriter) which is predicated on having a score. If the reports come back as “unscoreable” the automated approval will typically fail, but that doesn’t mean you’re automatically rejected.
- Fannie Mae and Minnesota Housing are both looking at the prospect of manual underwriting for files that don’t fit in the automated system and Minnesota Housing goes so far as to state that lenders “originate and close loans under their individual underwriting and closing procedures”.
- Fannie’s own manual underwriting matrix (HomeReady/HomeStyle) permits manual files with a maximum DTI of 45% so a strong documented file can be manually approved.
- What you need is a lender that will do non-traditional credit / manual underwriting. The big banks often won’t. Credit unions, portfolio lenders, and some of the lenders that are part of the Minnesota Housing program will participate. Ask specifically: “Do you do manual underwriting for borrowers with no FICO score using non-traditional credit?” If they hesitate at all, move on.
You’ve got 9 years of perfect $600/month payments from 2017 onwards. That’s precisely the kind of alternative credit paper trail that manual underwriters are looking for.
2. Yes, paying off a contract for deed via refinance is the standard.
A contract for deed payoff refi is a normal refi in all respects: you go through the application, the income, the credit, the appraisal. You’re not ‘buying’ the house at all as you already effectively own it, so it’s just a standard refi which pays off the contract seller and puts you into a first lien position. One caveat in terms of structure: Minnesota law does treat a contract for deed differently from a mortgage (the term ‘mortgage’ doesn’t cover a contract for deed under state statute), but again that doesn’t stop it being a refi. It just means the payoff and title work has to be done properly.
Two things to nail down:
- Get a written payoff statement from the contract seller. Don’t just go on the $25,879 that they’ve said.
- Confirm the seller doesn’t have a senior mortgage with a due-on-sale clause, which could complicate the title. If the seller has an underlying loan, then you’ll want the title to confirm that it clears.
3. The $40k-$50k loan is fine, though small loans have their own set of quirks.
$25,879 payoff so you’re looking at somewhere in the region of $14k-$24k of cash out or to cover your closing costs. That’s a fairly standard sized small loan. Two quick warnings:
- Some lenders have a minimum loan amount (e.g. $50k, $75k) so you’ll need to check that before you apply.
- On a small loan the fixed costs of closing (appraisal, title, VOE) will have a much bigger impact as a % of the loan. Get a Loan Estimate early, so there are no surprises.
Minnesota Housing has the Start-Up and Step Up programs which are worth looking at. Start Up has a restriction against being used to refinance an existing mortgage so you’d need to check whether your contract-for-deed payoff would qualify or whether a straight conventional refi would be the better option.
4. Alternative credit documents to gather (build a thick file).
Since you have no score, the manual underwriter will use documentation instead. Send:
- 12 to 24 months of cancelled cheques or bank statements showing every $600 payment to the seller. That’s your #1 document. Perfect 9-year history.
- A signed 12-month rent/payment history letter from the contract seller (name, address, phone, amounts, dates, “paid as agreed”).
- Utility bills (12 months, all in your name, all paid on time: electric, gas, water, internet).
- Insurance premiums (12 months paid) – auto, home, life.
- Any other recurring obligations which are paid on time (phone, cable, gym, child care, etc).
- Bank statements (2-3 months) showing reserves and steady deposits.
- Proof of income (pay stubs/W-2s or if self-employed, then tax returns).
- The contract for deed and the payoff statement.
Three to four tradelines of on-time payments (utilities, insurance, phone, your $600 payment) is generally the threshold that a manual underwriter will use to create a ‘non-traditional’ credit report. You’ve got more than sufficient material.
Bottom line: this is doable. The refi is standard, the loan amount is appropriate, and your payment history is excellent. It all comes down to finding a lender that will do manual underwriting on a non-traditional credit profile (that’s your make-or-break). Call 2 or 3 local Minnesota credit unions and ask that very specific question before you send a single document.
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