Oct 25, 2024
Personal finance expert Dave Ramsey is often derided for his insistence on living a debt-free lifestyle. The 64-year-old radio host urges his listeners to avoid debt, from outstanding credit card balances to student loans. But he does make an exception for mortgages.
In light of this, during a podcast interview on Sept. 26, George Janko of “The George Janko Show” wanted to know how someone could get a mortgage without other forms of debt to establish their creditworthiness.
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“How do you rent a car? How do you build credit?” he asked Ramsey. “How do you live a life that you can’t even have a credit [card]?”
Ramsey explained that the purpose of building credit was to borrow more money and that mortgages can be acquired without a credit score through a process known as manual underwriting.
“Manual underwriting is the way mortgages were done when I got into the real estate business in 1978,” he said.
Some listeners were not satisfied with this answer. Here’s why.
Manual underwriting
As the name suggests, manual underwriting involves an actual person going through your financial documents to establish your creditworthiness. This process may involve a comprehensive review of your employment history, income and bank statements and non-traditional sources of credit, such as utility payment history, to assess your ability to repay the loan.
Podcast listeners pointed out that this process was outdated and, perhaps, not so common anymore.
“Bro accidentally exposed that his advice is 46 years out of date,” said one commenter on YouTube.
“Unfortunately, Dave, it’s not 1970 anymore and 99% of banks don’t do manual underwriting,” claimed another.
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However, something rare or outdated isn’t the same as being extinct. Underwriting may be uncommon, but it hasn’t exactly gone the way of the dinosaur just yet.
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A rare alternative
Credit reporting giant Experian has called manual underwriting, “a good alternative when you're likely to be denied by automated underwriting.” Mortgage company Rocket Mortgage also suggested manual underwriting as an option as of 2024.
At least one major bank — Chase Bank — has recommended manual underwriting as an alternative for those who have no credit history. Meanwhile, Fannie Mae, offers an eligibility matrix that underwriters can use to manually process mortgages.
None of these institutions indicate how common manual underwriting is or whether they offer this option to their own borrowers. Nevertheless, the possibility of a manual underwriting process could help those who live a debt-free lifestyle or don’t have a long credit history.
According to the Government Accountability Office, roughly 45 million Americans did not have a credit score as of 2022 due to lack of data. Manual underwriting could help these underserved consumers access loans and mortgages for the first time.
This process can also be useful for wealthy families looking to purchase extremely valuable properties that do not conform to traditional standards. Jumbo loans, or jumbo mortgages, are mortgage loans that exceed the limits set by the Federal Housing Finance Agency and typically require manual underwriting, according to Rocket Mortgage. But, due to stringent borrowing requirements, a good credit score is needed in such cases.
Whether you’re an experienced consumer trying to live debt-free or a young person with no credit history, the option to manually underwrite a loan could provide you access to big-ticket items like housing without having to build your credit score and apply for different forms of debt first.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
