FHA Loans With No Credit Scores With Manual Underwriting

HUD, the parent of FHA, allows borrowers to qualify for FHA loans with no credit scores and/or no active tradelines. The reason why some people have no credit scores is that they never opened up a traditional credit account. HUD understands some folks who are financially responsible do not want to do anything with credit. Borrowers with no credit scores and/or no credit tradelines are eligible to qualify for an FHA loan with non-traditional credit. Needs to be a manual underwrite and cannot have any derogatory credit tradelines.

Using Non-Traditional Credit Versus Traditional Credit Tradelines On Borrowers With No Credit Scores

Non-traditional credit is creditors such as utilities, cell phone, insurance, tuition, cable, and internet, who do not report to the three credit bureaus. You cannot have a history of late payments in the past and/or collections and/or charged-off accounts. FHA loans with no credit scores are for folks who have never had prior credit. It is not for people who had a history of disregard for credit and due to being financially irresponsible, they do not have a credit score and/or credit tradelines.

Recent College Graduates Homebuyers With No Credit Scores

Recent college graduates who are eligible to qualify for a mortgage with no prior work experience or credit during their school years often do not have credit scores. As long as they were full-time students for the past two years, the time as a full-time student is equivalent to the 2 years of prior work experience on FHA loans. Many recent college graduates have no active credit tradelines and have no credit scores on all three credit bureaus. Most have never opened up a credit tradeline. Mortgage borrowers with no credit scores can still qualify for a mortgage with non-traditional credit tradelines via manual underwriting. 

Can I Qualify For An FHA Loan After Bankruptcy and/or Foreclosure With No Credit Scores?

Some folks went through a Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. After the bankruptcy and/or a housing event, they decide never to get credit again. Whatever they buy,  they vow to buy it cash or not buy it at all.  These folks often do not believe in credit and re-establishing credit after their economic event. Unfortunately, having no credit is not viewed favorably by any lenders and creditors.

The Importance Of Timely Payments After Bankruptcy And Foreclosure To Qualify For FHA Loans With No Credit Scores

The good news is those home buyers can qualify for FHA Loans With No Credit Scores or traditional credit tradelines. As long as you were not late after bankruptcy and/or a housing event, you are eligible to qualify for an FHA loan with no credit scores.  In this article, we will discuss and cover qualifying for FHA loans with no credit scores or tradelines. Gustan Cho Associates are experts in helping first-time homebuyers and recent college graduates with no credit scores using non-traditional credit tradelines.

FHA Loans With No Credit Scores Versus Borrowers With Credit Scores

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

Can You Get An FHA Loan With No Credit Score?

One of the most FAQs on FHA loans is can you get an FHA with no credit? The answer is YES but you cannot have a history of bad credit. FHA loans is the most popular loan program for first-time homebuyers with thin credit or no credit. The lender will use non-traditional credit tradelines when processing and underwriting FHA loans with no credit scores. Needs to be a manual underwrite.

What Does Having No Credit Mean When Qualifying For An FHA Loan?

By having no credit, that means there are no credit scores on all three credit reporting agencies;

  • Transunion
  • Experian
  • Equifax

How To Get Credit Scores Fast So I Can Qualify For An FHA Loan With A Credit Score?

Consumers who have no credit, thus no credit scores 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 have 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.

FHA Loans With Nontraditional Credit In Lieu Of Traditional Credit Tradelines

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

Nontraditional credit is payment history that does 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

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, lenders can have mortgage guidelines that are above and beyond those of FHA called FHA Lender Overlays :

  • Most lenders have internal mortgage underwriting overlays where they require only traditional credit tradelines
  • Gustan Cho Associates 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 need to be paid on time for the past 12 months

It needs to be proven with canceled checks or automatic payment deductions from the checking account going into the nontraditional creditor.

What Are Examples Of Non-Traditional Credit Tradelines Needed To Qualify For A Mortgage

Borrowers without credit scores can qualify for a mortgage with non-traditional credit tradelines:

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 Guidelines On FHA Loans With No Credit Scores

FHA Loans With No Credit Scores

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 the monthly rental payment, always pay it with a bank check
  • The only way that verification of rent is valid is if the renter can provide proof of payment via 12 months canceled checks and/or bank statements
  • If the 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 form completed and signed by the property manager
  • The VOR needs to be completed and signed, dated, and signed by the property management manager
  • The mortgage underwriter will require that borrower provide twelve months canceled 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 mortgage lender licensed in multiple states with no overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, holidays.

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