Home Loan With No Credit Tradelines Mortgage Guidelines
This BLOG On Home Loan With No Credit Tradelines Mortgage Guidelines Was UPDATED On May 15th, 2019
By Gustan Cho
Tips In Qualifying For 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 for credit tradelines that have been seasoned for 24 months
- 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 had it for at least 12 months
- To be able 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
Home buyers 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
- There is no minimum amount of credit tradelines required to get an approve/eligible per DU FINDINGS or LP FINDINGS via the Automated Underwriting System
- But many mortgage lenders do have their own mortgage lender overlays in the minimum amount of credit tradelines
- Unless borrowers go with a lender that just go off the DU FINDINGS or LP FINDINGS, most mortgage lenders will normally require at least 3 credit tradelines that have been seasoned for at least one year
- Some mortgage lenders will go as far as requiring three credit tradelines that have been seasoned 24 to 36 months
- For those folks who have recently filed 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
- Consumers can start developing credit tradelines if they intend on buying a home in the near future
If a bank, credit union, or mortgage banker requires borrowers they do not qualify because of not having enough credit tradelines, or no credit scores, do not give up hope.
- Every lender has their own set of overlays when it comes to 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
How Do I Go About Qualifying For Home Loan With No Active Credit Tradelines?
There are situations where a person has had previous credit and credit history but has closed out all of their accounts.
- By closing out their accounts, it means that they have paid off every installment loan they had 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 there is a positive solution
- If a borrower has no active credit tradelines on their credit report, they might get a refer/eligible per DU FINDINGS and/or LP FINDINGS
- This means they did not get an automated approval via the Automated Underwriting System
- 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, 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
- Maximum debt to income ratio cap is capped at 50% versus 56.9% debt to income ratio
- With manually underwritten loan applications, there is a minimum of 3 credit tradelines 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 such as credit card payment history, auto loan history, student loan payment history, and installment loan payment history. Non-traditional credit tradelines are tradelines that do not report to the credit reporting agencies. Rental verification, utility bills, insurance payments, cell phone payments, cable tv payments are all examples of non-traditional credit tradelines. A mortgage lender needs to do a verification of these non-traditional credit tradelines and will require that you provide 12 months canceled checks and do a credit supplement and have it reported to the three credit reporting agencies.