The Disappointment

Going into the home buying process, my husband, Andy, and I thought it best to give ourselves over a year to save up for at least a 20% down payment on a house. We knew that paying less than 20% down on a house meant having to pay for private mortgage insurance (PMI). Leo from Churchill Home Mortgage confirmed this. We also wanted to pay at least 20% down so that we would be less likely to buy a house that we couldn’t really afford. Plus, putting at least a 20% down payment meant decreasing the total amount of our mortgage, which would mean a lower monthly payment.

However, Leo questioned whether or not we should abandon our ideal of 20% down. He told me that FHA loans only require 3.5% down, and most private loans only require 10% down. While putting less than 20% down would require paying for PMI, we could write off the PMI on our taxes. Besides, buying a home before interest rates and home values increase would probably save us money in the long run.

I am a spender, not a saver. If I can buy sooner rather than later, I am inclined to do so. Andy is not. He is a saver. He is careful, methodical, and disciplined with our finances. I have always appreciated that about him.

Convincing Andy to buy a house with less than a 20% downpayment will be difficult. I am not even sure that I think that it is a good idea, but in the spirit of our home buying adventure, I decide to pitch the idea to him one Friday night.

Andy is sitting on our hand-me-down couch watching tomorrow’s weather forecast. I snuggle into his side. The house is still warm from the sunny day, but the evening chill is starting to settle into the apartment. I tell him all about my conversation with Leo and how Leo encouraged us to shorten our one-year timeframe.

“He told me that we didn’t need 20% down.” I throw it out there, trying to sound casual. “He said that we can write off our PMI on our taxes and that if we get a private loan, we will stop paying PMI once we pay 20% of the principal.” Andy glances at me. Inwardly, I cringe.

“Yeah, but we just don’t want to pay PMI,” he says. The weather lady rambles about more sun and high temperatures.

“True. But in the long run, we may end up paying less if the interest rates and home prices go up,” I counter. Andy grimaces.

“We don’t really have enough money right now for ANY down payment.” My stomach sinks. He is right. Money is tight. Our move from the west coast to Texas meant a pay-cut, and right now we are having trouble covering our monthly expenses without tapping our savings account. I sigh, because I know he’s right.

The optimistic spender in me hoped that we might be able to get into a house in less than one year. I am eager to settle into a home after several years of renting and to make Texas our permanent home now that Andy has a permanent job. I am ready to buy a house, but our bank account really isn’t.

Andy wraps his arms around me and pulls me closer. He sees that I’m disappointed.

“God just doesn’t have us in a place yet to buy a house,” he says.  “We are trying. You are working. I’m looking for a promotion. We just have to keep waiting.”

So that’s where we were Friday night: sitting on our couch, leaning into each other, realizing that what we have really wanted for several years is still out of reach and that we still need to wait on God to provide. As I lean and sit and wait, I think, “How do I wait and be proactive at the same time?” I will need to think about this for a while.

Alternative Credit Trade Lines

With our zero credit score in mind, I started the research yesterday to discover what our mortgage process will require. I started by calling our local credit union, which we have held membership in for over 15 years, and I was quickly informed that they will only approve mortgages for people with a 620 credit score or higher.

I hung up the phone feeling a little surprised that our long-term credit union would have no options to give us a mortgage, but I was not discouraged. My next call was to Churchill Home Mortgage.

Churchill Home Mortgage (CHM) was recommended to us by a friend who just bought a beautiful home with a zero credit score. We had also heard of CHM from radio personality and financial coach, Dave Ramsey. Before calling, I browsed the website to see what info they may have for families in the zero credit score situation. I was pleased to find an article that outlined the basic underwriting process for people in our situation. The article said that CHM will do manual underwrites for mortgages and that in the case of a zero credit score, the borrower would need to provide four “alternative credit trade lines.” Since I was not familiar with this term, I decided to call Churchill.

I spoke with a friendly loan officer (we’ll call him Leo) at CHM, who was very helpful and friendly. He informed me that alternative credit trade lines are entities, to which a person makes regular, consistent payments such as rent, utilities, insurance.

“You need at least four alternative credit trade lines to get a mortgage,” Leo told me. “When you are ready to begin the pre-approval process, you will need to provide documentation from each trade line that shows that you have made your payments regularly and on time with no late fees.”

We can do that! I thought to myself. Besides our rent, we can get documentation from our electric company, water provider, car insurance and cable/internet provider.

“My husband and I do not expect to purchase a home until about a year from now. What advice do you have for us at this point in the process?”

Leo suggested that I make sure that both Andy’s name and my name were on all four of our alternative credit trade lines as each of us needed to provide four trade lines individually. It would be okay if they were the same trade lines, but each had to show both of our names. That was a good tip. I made a mental note to check on this. Leo offered some other helpful information regarding down payments, which I will discuss in future posts.

I came away from my conversation with Leo feeling very encouraged. Getting a mortgage with a zero credit score doesn’t sound as complicated as I first thought. Now, our next hurdle is saving for our down payment.

A Zero Credit Score?!

I have to admit that, though we have owned a house in the past, the task of getting a loan, searching for a house, deciding on a house and then closing on a house all sounds like a really daunting, overwhelming task. This process would be intimidating in of itself, but we have one other complication to add to the mix: a zero credit score.

“What?” you may be asking. “How does anyone have a zero credit score?”

The answer is simple; we currently have no debt and no lines of credit. We did purchase our first home with a mortgage. But since we sold that house four years ago, we now have no lines of credit and therefore a zero credit score.

We have scrimped, saved, trimmed fat and worked numerous jobs over our last 15 years of marriage in order to avoid debt besides a mortgage- no student loans, no car loans, no credit cards. For us, debt is not an option.

Now, I have to admit that I have not always been on the debt free plan. My parents taught me to pay cash for purchases. However, I was also taught that upon graduating high school, I should start to build my credit. So during the first week of school my freshman year of college, I signed up for my first credit card. (Free 2 liter of Pepsi anyone?) My plan was to use the credit card for emergencies and when I did use it, to pay the entire balance off each month.

The problem occurred when I became a resident advisor in my dorm my junior year of college. I wanted to host a program in the dorm to welcome all of the new residents, and I wanted to buy some pizzas to share. Of course, I could be reimbursed for the cost of the pizza, but I had to pay the money up front first. So I used my credit card. This became a fairly regular habit during my time as a resident advisor, but the problem was that I was not disciplined enough to take the reimbursement checks, deposit them and use the money to pay off the credit balance. I got lazy, and my bookkeeping was nonexistent. Pretty soon, I was carrying a couple hundred dollar balance and only paying the minimum payment each month.

The crazy thing was that in the process of being undisciplined in my finances, I was actually building an amazing credit score. I was making regular payments on time. Never mind that I didn’t have the money to pay off the balance or that I had no savings. I was still considered a good borrower.

After I graduated college, I finally decided to stop the insanity of the minimum monthly payments and pay the whole thing off. After all, Andy and I were to be married nine months later, and I didn’t want to bring any debt into our marriage. I was able to pay it off in a few months.

When Andy and I purchased our first house three years later, I still had that great credit score, and I still had that open line of credit. It made our mortgage approval process easy, but Andy and I both began to question the credit game. A year or so later, we both decided to close our credit card accounts and to quit the senseless credit score game for good.

How the Dream Was Born

For me, buying a house represents permanency and stability. I lived in houses most of my childhood. Very fond memories are still attached to the two houses that I have memory of living in.

However, at the age of 38, I have owned only one house. That was a house that we bought in 2004 in Cincinnati, Ohio while my husband was in graduate school. We were told by some advisors not to purchase a home while in graduate school, since we may need to sell the house in less than five years in order to take a job upon graduation from grad school. On the other hand, the country was in the midst of the housing boom, and buying a house seemed like a great way to invest some money and then sell the house a few years later for a considerable profit. Home prices were going up while interest rates were relatively low. So we bought a modest, two-bedroom eighty-year-old house less than a mile from both my work place and my husband’s school for $65,000. The monthly escrow payment was less than what we had been paying in rent for our dumpy two-bedroom apartment. Our neighborhood was indeed a hood, but in the reurbanization trend of the city, we could see signs of neighborhood revitalization taking place.

As it turns out, we owned that house for nine years after my husband received a job offer on the west coast. By then, it was 2013, the housing boom had busted, and we were able to sell our house for $67,000. It wasn’t the return in investment that we hoped for when we first purchased it, but we were happy to be able to pay off the rest of the mortgage and walk away with a few thousand dollars. That was much better than many people were able to do in the housing market at the time. Plus we were satisfied in knowing that our little two bedroom house had been fertile ground for creating so many family memories: getting our first dog, bringing home our two daughters from the hospital, hosting international students, building raised bed vegetable garden, sledding down the hill in the side yard, hosting birthday parties, hammering out a dissertation in the little basement office that my husband crafted. Our house had become a permanent part of our family’s history.

Our move to the west coast was an adventure that we were thrilled to embark upon, and we knew that owning another home right away was out of the questions given the temporary nature of my husband’s job. He had received only a one-year contract to teach at a university, and we knew that renting for that year was the wisest thing to do. Andy’s one year contract was then renewed twice, so we spent three wonderful years in the green, woodsy, scenic Willamette Valley of Oregon.

When Andy’s contract expired after the third year, he landed a job in sunny, spicy San Antonio, Texas. This time, his job was a permanent job, at least as permanent as any job could be. We were sad to leave Oregon, but glad that we could go to San Antonio to put down roots and establish permanency for the first time on our married life.

Andy was offered the job, and two weeks later, we moved to San Antonio. Since we needed to move in such a short time frame, and since we had never even visited San Antonio before moving here, we decided to rent. We found an apartment and began to build our new live in the sunny southwest.

That was one year ago. Now, we are more familiar with San Antonio. We know the layout of the city, the places we like to go, the neighborhoods that we would like to live in. We are ready to sink our roots deeper and purchase a house.