We've worked hard to stay mostly debt-free…and now can't get a mortgage? What would you do?

So my wife and I went to the bank this weekend to talk mortgage options for a house we’re trying to buy. We’re first-time homebuyers, so we’re new to this.

Before we married, my wife had three car loans and one credit card (which she paid off in six months and never used again) in her credit history. The last of the car loans is within a year of being paid off, and we’re likely to pay it off early if we can get settled in the house we’re trying to buy.

Meanwhile, I took out a small loan (,500) for a pickup truck when my last one got totaled by deer running into the highway. I paid it off early, in two years’ time, and haven’t had any debt to my name since about a year ago. Before that loan, I had no debt, ever. Having seen some members of my family struggle with debt, I’ve made it a point to pay cash for just about everything– even my wife’s recent kidney stone treatments that totaled ,000.

When the bank ran our credit, it showed that I had no credit score. This was odd, given that I just paid off a ,500 loan a year ago, but I had expected they might say something about my limited credit history. This bank only does Fannie Mae mortgages (it’s a rural area, so that’s the norm.) As a result of Fannie Mae guidelines, we’d have to pay ,860 in extra loan fees (bringing our total fees to a little more than ,000!) because of my lack of credit history.

Had my wife applied by herself, on half the income, she wouldn’t have any extra loan fees, making the closing much more affordable. But we’re a team, financially, and besides, that option wouldn’t allow me to build any credit history for the future, either.

It seems like banks are putting hard-working homebuyers like me at a disadvantage by effectively penalizing us for staying mostly debt-free.

We’re going to shop around to other banks that offer both government-secured and privately-funded mortgages, just to see if we fare any better.

What would you do in this situation? Do any banks still bother to do the homework of calculating debt-to-income ratio and looking at your other payment histories (utilities, doctor bills, etc) like they used to? Our D/I ratio, even with the mortgage we’re seeking, will be under 25 percent.

  1. godged, 22 May, 2010

    That is nonsense, a good lender will do a more thorough research of your situation. If you have utlities in your name and such, you have a credit score.

  2. glenn, 22 May, 2010

    In my area a bank only "runs the numbers". You need a loan officer that can actually help you put together your loan and submit it to the right investor. That may involve tracking down the records to that $5,500 loan and some other things.

    A good loan officer that is local so that you can meet with them face to face is your best bet.

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