19 replies to this topic

[renc]

Wife and I are buying a home. Purchase price is $800K, and we presently have about $550K to $600K cash to allocate for downpayment. I'd like to go all the way to $800K with cash, but it would leave my reserves below my comfort level. In theory, it would make more sense for me to finance about $200K-$250K and then pay that off in the next couple of years.

We have good income in the $300K-$500K range, zero debt of any kind, and we own a solid and well-respected business. Business employs about 20 people, has perfect track record in all bills and payments, and has zero debt and no outside investment. We have had three successive record growth and profit years through the recession.

Problem is that we have lived completely on a cash basis for more than 10 years, so we have nothing in our credit report - an absolute blank slate. There's literally nothing at all on file, so no FICO score.

Our payments for rent, phone, cable tv, insurance, utilities have all been absolutely perfectly paid on time for years and years. We have put 2 kids through college, paid in full in cash so kids have no debt, either. We've bought our cars with cash, etc, etc. Landlord for home loves us, landlord for business loves us, bank loves us (well, the branch staff, but they have no power.)

It seems like every lender needs a FICO score or they can't do anything at all, despite the clear and provable record of clockwork bill paying and business success funded entirely through cash flow.

I'm actually somewhat dismayed that the options are so limited. It is a sign of the times that the banks who dragged our country into this financial crisis are delighted to talk to a guy with a salary of $40K and a 650 FICO, but a self-made 100% debt-free businessman with cash and high net worth is untouchable.

What should I do? Are there viable options, or do I just have to pay the full $800K in cash?

Rick in NC

[Brian B The Loan Professor]

Wife and I are buying a home. Purchase price is $800K, and we presently have about $550K to $600K cash to allocate for downpayment. I'd like to go all the way to $800K with cash, but it would leave my reserves below my comfort level. In theory, it would make more sense for me to finance about $200K-$250K and then pay that off in the next couple of years.

We have good income in the $300K-$500K range, zero debt of any kind, and we own a solid and well-respected business. Business employs about 20 people, has perfect track record in all bills and payments, and has zero debt and no outside investment. We have had three successive record growth and profit years through the recession.

Problem is that we have lived completely on a cash basis for more than 10 years, so we have nothing in our credit report - an absolute blank slate. There's literally nothing at all on file, so no FICO score.

Our payments for rent, phone, cable tv, insurance, utilities have all been absolutely perfectly paid on time for years and years. We have put 2 kids through college, paid in full in cash so kids have no debt, either. We've bought our cars with cash, etc, etc. Landlord for home loves us, landlord for business loves us, bank loves us (well, the branch staff, but they have no power.)

It seems like every lender needs a FICO score or they can't do anything at all, despite the clear and provable record of clockwork bill paying and business success funded entirely through cash flow.

I'm actually somewhat dismayed that the options are so limited. It is a sign of the times that the banks who dragged our country into this financial crisis are delighted to talk to a guy with a salary of $40K and a 650 FICO, but a self-made 100% debt-free businessman with cash and high net worth is untouchable.

What should I do? Are there viable options, or do I just have to pay the full $800K in cash?

Rick in NC

While I understand the frustration the banks werent the only place to point a finger - they gladly walked down the aisle with a lot of people that shouldnt have made that commitment -
anyways your situation is tough - I would think given the amount of skin you will be placing into this that there should be a bank willing to work with you on the rest - it wont be a traditional mortgage - those require credit scores - but maybe a portfolio loan of some sort - worst case there are hard money loans but if you are unhappy with no loans for no scores you will be even more unhappy when you hear how much money they will make on your loan - Typically 2-4 points upfront and a rate of 9-13% they base the loan almost entirely on your equity position - they see it simply as a safe loan if you default they get the house - they also understand you will do what you have to to get out from under the loan asap so they front load their fees and make it quick instead of over the life of the loan - I would check with whatever bank you have your business account and see if they can help - maybe a manager instead of a loan officer - they make those types of decisions -

Good Luck I hope you find something that works - it should be a no brainer - but common sense and banking dont always mix

[jop3]

Have you called the bank that you have your current accounts at? Sometimes, you can get a portfolio loan on the strength of your current accounts. We have a credit union in my area that will do crazy loans occasionally, if the equity position is great and there is a lot of money in deposit accounts with the credit union. I think you can find someone to do this loan, but it's going to be a lot of footwork, just beating on doors.

[renc]

Have you called the bank that you have your current accounts at? Sometimes, you can get a portfolio loan on the strength of your current accounts. We have a credit union in my area that will do crazy loans occasionally, if the equity position is great and there is a lot of money in deposit accounts with the credit union. I think you can find someone to do this loan, but it's going to be a lot of footwork, just beating on doors.

Thanks for the input, jop3. I have definitely spoken with my bank (Wells Fargo.) I think they are too large and compartmentalized, so the local branch officers who have known me for years don't have enough influence to say that my longstanding perfect track record with them counts as a viable alternative. They have mentioned a portfolio loan, but haven't come up with anything I can act on yet.

I am speaking with 2-3 of the best local community banks here in NC, and it looks like they may be more able and willing to build a working relationship with me. In 6 months to a year I'll have established the apparently all-important FICO score, but I'd sure like to find an option today that doesn't force me to dangerously deplete my cash reserves for the business.

I will also go speak to some of the local credit unions - good idea. Keep your fingers crossed for us!

Cheers,
Rick in NC

[renc]

Well, I shopped around, and after speaking to some of the community banks it looks like they may be ready to give me the mortgage I'm seeking as part of a package to win my overall banking business.

The local bank has a portfolio loan product that they hold in-house instead of packaging and selling into the aftermarket, so they aren't required to use FICO score as a mandatory pre-condition for lending. They are looking at my strong bank balances, large downpayment, personal and business financial statements, two years of personal and business tax returns and letters of recommendation from landlords in home and business.

It'll likely be a $300K loan at 4% with no points, 7-year ARM with 30-year amortization schedule. I will establish traditional credit and refi to a fixed 15 or 30 year note, or maybe just pay it off.

Cross your fingers for us, and thanks to all the knowledgeable people here at CB!

Cheers,
Rick in NC

[jop3]

That sounds like the perfect deal for you. Good luck!!!

[Chris in OK]

I'm not here to stir the pot or anything but this is precisely why I tell people not to follow Dave Ramsey's advice (not saying you did). What if you hadn't been able to find a solution? Would you be SOL? Probably. You NEED a FICO in this day and age.

[renc]

I'm not here to stir the pot or anything but this is precisely why I tell people not to follow Dave Ramsey's advice (not saying you did). What if you hadn't been able to find a solution? Would you be SOL? Probably. You NEED a FICO in this day and age.

You'll get no argument from me. I feel it is a sign of the times, however, that we have a scoring system that depends on people having debts to repay in order to assess whether they are a good credit risk. The complete failure of the system to account for someone who has little or no debt and has ample capacity to repay is a fatal flaw. Adding insult to injury, this requirement to be a debtor to get a score is imposed by a congress and financial regulators and industry who have basically brought this country to its knees with their terrible budget deficits and bad lending practices.

I'm glad the local community bank was able to recognize and respect our debt-free status, high net worth and cash on hand as signs of real success. It's so screwed up that we felt like outcasts after our initial discussions with WF. It was as if we were near-criminals for not even having a FICO score.

Peace,
Rick in NC

Edited by renc, 04 August 2012 - 07:36 PM.

[saladdin69]

Wife and I are buying a home. Purchase price is $800K, and we presently have about $550K to $600K cash to allocate for downpayment. I'd like to go all the way to $800K with cash, but it would leave my reserves below my comfort level. In theory, it would make more sense for me to finance about $200K-$250K and then pay that off in the next couple of years.

We have good income in the $300K-$500K range, zero debt of any kind, and we own a solid and well-respected business. Business employs about 20 people, has perfect track record in all bills and payments, and has zero debt and no outside investment. We have had three successive record growth and profit years through the recession.

Problem is that we have lived completely on a cash basis for more than 10 years, so we have nothing in our credit report - an absolute blank slate. There's literally nothing at all on file, so no FICO score.

Our payments for rent, phone, cable tv, insurance, utilities have all been absolutely perfectly paid on time for years and years. We have put 2 kids through college, paid in full in cash so kids have no debt, either. We've bought our cars with cash, etc, etc. Landlord for home loves us, landlord for business loves us, bank loves us (well, the branch staff, but they have no power.)

It seems like every lender needs a FICO score or they can't do anything at all, despite the clear and provable record of clockwork bill paying and business success funded entirely through cash flow.

I'm actually somewhat dismayed that the options are so limited. It is a sign of the times that the banks who dragged our country into this financial crisis are delighted to talk to a guy with a salary of $40K and a 650 FICO, but a self-made 100% debt-free businessman with cash and high net worth is untouchable.

What should I do? Are there viable options, or do I just have to pay the full $800K in cash?

Rick in NC

I would do more research into the who was "responsible" for the financial crisis. Also, you don't think it's ironic you are running to the exact people for money that you blame for the crisis?

You would be some college kid's perfect study project on how much more someone with a 0 FICO pays in insurance rates, loan rates etc...

I'd just save a few more years and pay cash if I were you. Less stress and probably get a sweet deal when you pull out the garbage bag full of cash to the seller.

[hairmetal4ever]

Have you called the bank that you have your current accounts at? Sometimes, you can get a portfolio loan on the strength of your current accounts. We have a credit union in my area that will do crazy loans occasionally, if the equity position is great and there is a lot of money in deposit accounts with the credit union. I think you can find someone to do this loan, but it's going to be a lot of footwork, just beating on doors.

Thanks for the input, jop3. I have definitely spoken with my bank (Wells Fargo.) I think they are too large and compartmentalized, so the local branch officers who have known me for years don't have enough influence to say that my longstanding perfect track record with them counts as a viable alternative. They have mentioned a portfolio loan, but haven't come up with anything I can act on yet.

I am speaking with 2-3 of the best local community banks here in NC, and it looks like they may be more able and willing to build a working relationship with me. In 6 months to a year I'll have established the apparently all-important FICO score, but I'd sure like to find an option today that doesn't force me to dangerously deplete my cash reserves for the business.

I will also go speak to some of the local credit unions - good idea. Keep your fingers crossed for us!

Cheers,
Rick in NC

In NC you can try BB&T or Regions - they're smaller than Wells but big enough to have some clout, and might consider working with you. Also check local credit unions.

I don't know if any of the above can help, but they're all worth a try, esp. if you offer to put some cash in deposit accounts with them if need be.

Edited by hairmetal4ever, 08 August 2012 - 07:43 AM.

[endthefed]

You say you are buying a specific home, but I don't see how you can be so sure you are buying it before even being preapproved for a loan. Why not buy a home in the 600k range that you can pay for all in cash, and then in a few years (while you build credit) if you're not satisfied upgrade to a better one? Maybe in a few years from now you could find yourself ready to purchase a million dollar home if you play your cards right.

Edited by endthefed, 08 August 2012 - 09:10 PM.

[renc]

You say you are buying a specific home, but I don't see how you can be so sure you are buying it before even being preapproved for a loan. Why not buy a home in the 600k range that you can pay for all in cash, and then in a few years (while you build credit) if you're not satisfied upgrade to a better one? Maybe in a few years from now you could find yourself ready to purchase a million dollar home if you play your cards right.

I'm sure I'm buying the house because I was prepared to pay 100% cash if I couldn't obtain the small amount of financing I wanted on reasonable terms. Doing so is less than optimal because it would draw down too much of my liquid asset base, but thankfully it is an available option, if needed.

Anyway, it turns out that paying all cash was not necessary. We were able to obtain the $300K loan we wanted. It was an eye-opening experience that revealed the differences between a giant bank like Wells Fargo and the smaller, local bank we moved to. They made it relatively easy to get approval on the mortgage we applied for, and the fact that we were going in with over 60% cash downpayment helped a lot.

Additionally, I have come to understand that I was simply arrogant to think I could proceed through life entirely outside of their credit system. There are lots of ways, both small and large, that you end up paying for life without a conventional credit score. I still don't want to allow debt into my life except in the most worthwhile and well-considered cases, but I will definitely change my view on establishing good credit. Bucking the system is not winning.

Cheers,
Rick in NC

[deemac]

Rick, you can establish a good credit score with relatively little cost. There's a difference between having debt and having credit. The mortgage will help, but open a few cards that you can use without carrying a balance. (To get an optimal score, they do like to see a very small amount reporting on a card or two, but you don't have to do that to get a good score.) I'd start with the bank that is giving you the mortgage; sounds like they understand your situation and appreciate your business - and have the flexibility to treat you accordingly. Then wait 6-12 months and get a couple more. You have to use them occasionally or they'll close them, but you might find if you get a good rewards card that you like it. You can pay the balance online before the statement posts and that way you'll never pay interest. But you might actually get money back with the rewards and credit cards are safer than debit cards or cash.

[hoapres]

The other option is to buy a house for cash at a foreclosure sale. If you go this route then talk to someone that has done it before. Depending on your area then $550K cash at the courthouse buys you a house that would normally go for $800K

[edgephoto]

Why not buy a more reasonably priced house. Establish credit and then move to your McMansion. In NC you can buy a pretty nice house for $600k.

[hegemony]

I'm not here to stir the pot or anything but this is precisely why I tell people not to follow Dave Ramsey's advice (not saying you did). What if you hadn't been able to find a solution? Would you be SOL? Probably. You NEED a FICO in this day and age.

You'll get no argument from me. I feel it is a sign of the times, however, that we have a scoring system that depends on people having debts to repay in order to assess whether they are a good credit risk. The complete failure of the system to account for someone who has little or no debt and has ample capacity to repay is a fatal flaw. Adding insult to injury, this requirement to be a debtor to get a score is imposed by a congress and financial regulators and industry who have basically brought this country to its knees with their terrible budget deficits and bad lending practices.

I'm glad the local community bank was able to recognize and respect our debt-free status, high net worth and cash on hand as signs of real success. It's so screwed up that we felt like outcasts after our initial discussions with WF. It was as if we were near-criminals for not even having a FICO score.

Peace,
Rick in NC

having and using credit cards does not mean someone "has debt to pay."

[bcbss]

Thats unreal. You should be a banker's dream customer. I hope you moved all your business out of Wells Fargo. No wonder we had/have a banking meltdown with these morons running the show. Thats why I say the whole credit scoring thing is a scam. Just like the big rating agencies that rated bundles of mortgages as A+ when they should have been rated as garbage. We definitely don't have the best and brightest running the show. Best of luck with your new home.

[King Leonidas]

GASP!

Rick, you mean to tell me you were able to secure a home loan WITHOUT a FICO? This flys in the face of everyone here who believes it can't be done, yet you sir, have shown otherwise!

I envy your financial prowess and ability to save and live within your means and solely on cash. If more Americans and our big government lived by your example as well as Dave Ramey's teachings, our economy would be in a much better place.

Don't believe me? Scoot on over to the Bankruptcy section, and tell me otherwise.

[twizzle]

GASP!

Rick, you mean to tell me you were able to secure a home loan WITHOUT a FICO? This flys in the face of everyone here who believes it can't be done, yet you sir, have shown otherwise!

We don't know if anyone who has ever posted here has ever truly rec'd any loan, FICO or no FICO. Not without their true identities and financial records. This is the interwebs, after all. So, in truth, nothing is flying anywhere any which way with anyone.

Congrats to OP on his new home.

Edited by twizzle, 02 October 2012 - 07:57 AM.

[saladdin69]

GASP!

Rick, you mean to tell me you were able to secure a home loan WITHOUT a FICO? This flys in the face of everyone here who believes it can't be done, yet you sir, have shown otherwise!

I envy your financial prowess and ability to save and live within your means and solely on cash. If more Americans and our big government lived by your example as well as Dave Ramey's teachings, our economy would be in a much better place.

Don't believe me? Scoot on over to the Bankruptcy section, and tell me otherwise.

You missed the points where he put down 60% and then goes on to say how he was "arrogant to think I could proceed through life entirely outside of their credit system."

The problem is that people who have no idea about finances think having a fico means you are millions in debt.

It can be done with no fico but you will pay for it in higher rates, higher insurance rates and lost opportunity costs because you have to put 60% of the cash down.

The only people I know who curse the dreaded fico monster are those who have a horrible score because of their poor choices and somehow think it's a logarithm 's fault they can't get a loan.


OP, Congrats on the house.