Home Loan With No Credit Tradelines Mortgage Guidelines

This guide covers qualifying for a home loan with no credit tradelines mortgage guidelines. The team at Gustan Cho Associates often gets frequently asked questions on how to qualify for a home loan with no credit tradelines. Credit tradelines are active and open credit accounts such as credit card accounts, automobile loans, installment loans, leases, and other creditors who report credit payment history to the three major credit reporting agencies.

When a lender requires a certain amount of credit tradelines, they are looking for active open credit accounts that have been seasoned for at least 12 months.

A lender may require credit tradelines that have been seasoned for 24 months. For consumers who opened a credit account, such as a secured credit card, that new credit account will not count towards a credit tradeline until they have had it for at least 12 months. To count it as a credit tradeline, consumers must have a 12-month payment history.

Guidelines on Qualifying For Home Loan With No Credit Tradelines

Homebuyers can qualify for a home loan with no credit tradelines. Many mortgage lenders do not want to approve borrowers for a home loan with no credit tradelines. No minimum amount of credit tradelines is required to get an approve/eligible per DU FINDINGS or LP FINDINGS via the Automated Underwriting System. However, many mortgage lenders have their mortgage lender overlays in the minimum amount of credit tradelines.

Unless borrowers go with a lender that just goes off the DU FINDINGS or LP FINDINGS, most mortgage lenders will normally require at least three credit tradelines that have been seasoned for at least one year

Some mortgage lenders will go as far as requiring three credit tradelines seasoned for 24 to 36 months. For those who have recently filed for bankruptcy or had a foreclosure, deed-in-lieu of foreclosure, or short sale, I strongly recommend that they start re-establishing credit as soon as possible. This can be accomplished by getting several secured credit cards.

Getting Approved For a Home Loan With No Credit Tradelines

Getting approved for a mortgage with no credit tradelines (a record of your credit activities) can be challenging, as lenders typically rely on your credit history to assess your creditworthiness. However, there are some strategies you can consider to improve your chances:

Alternative Credit Reporting

Some lenders consider alternative sources of credit history, such as rent payments, utility bills, and other recurring payments. You can work with lenders who use alternative credit reporting agencies to build a credit profile based on these non-traditional tradelines.

Manual Underwriting Home Loan With No Credit Tradelines

Some lenders offer manual underwriting, where a human underwriter assesses your financial situation beyond just a credit score. This can involve looking at factors such as your income, employment history, and other financial assets. Be prepared to provide detailed documentation of your financial stability.

Large Down Payment

A larger down payment can sometimes compensate for a lack of credit history. A substantial down payment reduces the lender’s risk, making them more willing to approve your mortgage application.

Building a good credit history before applying for a mortgage is generally advisable.

If you’re considering purchasing a home, it’s recommended to consult with a mortgage advisor or a financial professional to explore your options based on your specific situation. If you have a family member or close friend with a good credit history, you might consider having them co-sign the loan or be a joint applicant. This can increase the likelihood of approval.

FHA Home Loan With No Credit Tradelines

The Federal Housing Administration (FHA) offers loans with more lenient credit requirements. While they still consider your credit history, they may be more flexible than conventional lenders. Some credit unions offer credit builder loans designed to help individuals establish or improve their credit history. These loans often have lower amounts and are secured, making them more accessible to those with limited or no credit history. Consider applying for a secured credit card. This involves providing a cash deposit that becomes your credit limit. Responsible use of a secured credit card can help you build a positive credit history over time.

How To Establish Credit Tradelines

Consumers can start developing credit tradelines if they intend on buying a home shortly. If a bank, credit union, or mortgage banker requires borrowers to have low credit scores or insufficient credit lines, do not give up hope. Every lender has its own set of overlays regarding credit tradeline requirements. Just because borrowers do not meet one mortgage lender’s tradeline requirement does not mean that they do not qualify with a different mortgage lender. In some situations, a person has had previous credit history but has closed out all of their accounts.

Closing out their accounts means they have paid off every installment loan and closed out all credit card accounts.

These folks might have a good credit score and a good prior credit history but do not have any credit tradelines. Situations like these might become an issue, but a positive solution exists. Borrowers with no active credit tradelines on their credit report might get a refer/eligible per DU FINDINGS or LP FINDINGS. This means they did not get an automated approval via the Automated Underwriting System.

What Are Manual Underwriting on FHA and VA Loans

Just because they do not get an automated approval via Fannie Mae’s or Freddie Mac’s Automated Underwriting System does not mean that they do not qualify for a residential mortgage loan. As long as borrowers meet all other mortgage lending guidelines but cannot get an approve/eligible per DU or LP findings, their mortgage loan application may qualify for manual underwriting.

Manual Underwriting means the mortgage loan has to be manually underwritten. Manual underwriting files do require compensating factors.

The maximum debt-to-income ratio cap is capped at 50%, versus a 56.9% debt-to-income ratio. With manually underwritten loan applications, a minimum of three credit tradelines are required. If borrowers do not have three active credit tradelines, non-traditional credit may be used in lieu of traditional credit tradelines.

What Are Non-Traditional Credit Tradelines?

Traditional credit tradelines are credit items that report to the three credit reporting agencies: credit card payment history, auto loan history, student loan payment history, and installment loan payment history.  Non-traditional credit tradelines do not report to the credit reporting agencies. 

It’s important to note that even if you can secure a mortgage with no credit tradelines, you may face higher interest rates or less favorable terms.

Rental verification, utility bills, insurance payments, cell phone payments, and cable TV payments are all examples of non-traditional credit tradelines. A mortgage lender needs to verify these non-traditional credit tradelines and will require that you provide 12 months of canceled checks, do a credit supplement, and have it reported to the three credit reporting agencies.