Qualifying For FHA Loans With No Credit Scores Or Tradelines

This BLOG On Qualifying For FHA Loans With No Credit Scores Or Tradelines Was UPDATED On November 12th, 2017

There are situations where mortgage loan borrowers have no credit scores.

  • The reason being is because they have no active credit tradelines or never opened up a credit tradeline
  • Some folks who went through a Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, short sale went through such traumatic event that they do not believe in credit and re-established credit after their economic event
  • Unfortunately, having no credit is not viewed favorably by mortgage lenders

The good news is that home buyers can qualify for FHA Loans With No Credit Scores or traditional credit tradelines.

FHA Loans With No Credit Scores Versus Borrowers With Credit Scores

Mortgage Borrowers with no credit scores can easily get credit scores by doing the following:

  • Open up secured credit cards
  • Adding themselves on as authorized credit users of family and/or relatives
  • Getting an installment loan such as auto loans or furniture credit

However, to consider having traditional credit tradelines, consumers need to have a credit account for at least 12 months

  • By having no credit, that means there are no credit scores on all three credit reporting agencies;
    • Transunion
    • Experian
    • Equifax
  • Consumers who have no credit, thus no credit scores, it can easily be solved by getting two to three secured credit cards
  • Consumers will get credit scores reporting to all three major credit reporting agencies. 
  • However, mortgage lenders will not give credit towards seasoned credit tradeline requirements until borrowers have had a twelve month credit payment history reporting to the three credit bureaus

The good news, is that even if home buyers do not have credit scores or seasoned credit tradelines that has been seasoned for at least a year, it is still possible to qualify FHA Loans With No Credit Scores OR traditional credit tradelines reporting on the three credit bureaus.

Nontraditional Credit In Lieu Of Traditional Credit

For those mortgage loan borrowers with no credit and no credit scores, they are still be able to qualify for a mortgage loan via nontraditional credit.

  • Nontraditional credit are payment history that do not report to the credit bureaus such as the following:
    • Rental verification
    • Telephone bills
    • Utility bills
    • Cable bills
    • Cellular phone bills
    • Insurance monthly payments
    • School Tuition

Mortgage Lender Overlays On Credit Tradelines

Most mortgage lenders have lender overlays on credit tradelines. HUD, the parent of the Federal Housing Administration (FHA), does not have any credit tradeline requirements. However, lender can have mortgage guidelines that are above and beyond those of FHA called FHA Lender Overlays :

  • Most mortgage lenders have internal mortgage underwriting overlays where they require only traditional credit tradelines
  • The Gustan Cho Team will accept nontraditional credit for those with no credit and no credit scores
  • In order to be able to use nontraditional credit in lieu of traditional credit, the mortgage loan borrower needs a one year payment history on non[traditional credit tradelines
  • Non-Traditional creditors needs to be paid on time for the past 12 months
  • It needs be proven with cancelled checks or automatic payment deductions from the checking account going into the nontraditional creditor
  • Examples of non-traditional creditors are the following:
    • Landlord
    • Utility company
    • Telephone company
    • Insurance company
    • School

Cash payment is not acceptable on non-traditional credit.

Verification Of Rent

Verification Of Rent is the best compensating factor and is required for FHA Loans With No Credit Scores:

  • Rental verification is the strongest form of nontraditional credit and has a lot of weight. 
  • When consumers are paying monthly rental payment, always pay it with a bank check
  • The only way that a verification of rent is valid is if renter can provide proof of payment via 12 months canceled checks and/or bank statements
  • If renter is renting from a registered property management company, the 12 months canceled checks and/or bank statements can be replaced with a Verification Of Rent, VOR, that needs to be completed, dated, and signed by the property management manager
  • Mortgage underwriter will require that borrower provide twelve months cancelled checks to prove that they have been timely with making nontraditional credit payments  
  • Normally, 3 nontraditional credit accounts are required for those mortgage loan borrowers with no credit and credit scores because of having no traditional credit

Home Buyers that need to qualify for FHA Loans With No Credit Scores or Traditional Credit Tradelines with a direct mortgage lender with no overlays on government and/or conventional loans, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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