Mortgage With No Credit History And Tradelines Lending Guidelines

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Mortgage With No Credit History And Tradelines Lending Guidelines

This BLOG On Mortgage With No Credit History And Tradelines Lending Guidelines Was Written By Gustan Cho NMLS 873203

Mortgage With No Credit History And No Credit Scores: Income and credit are the two top factors mortgage lenders review when qualifying borrowers. Many home buyers have a hard time qualifying for Mortgage With No Credit History And Tradelines.

  • Most lenders have mortgage overlays where they will not accept any borrowers for Mortgage With No Credit History And Tradelines
  • Having credit tradelines is not an agency mortgage guidelines. FHA, VA, USDA, Fannie Mae, Freddie Mac does not require borrowers to have a certain number of credit tradelines
  • However, agency guidelines do require a minimum credit score requirement
  • There are some lenders that can qualify borrowers with no credit scores
  • However, it needs to be downgraded to a manual underwrite
  • Manual underwriting is only allowed on FHA and VA Home Mortgages
  • Credit Tradelines is when a consumer has a history of having credit and payment history with a creditor for at least the past 12 months
  • Mortgage Overlays are additional mortgage guidelines that is above and beyond those of FHA, VA, USDA, Fannie Mae, Freddie Mac
  • Some lenders have overlays where they may require three credit tradelines that has been seasoned for past 24 months with perfect on time payments
  • Again, credit tradelines are not mandatory to get an approve/eligible per automated underwriting system approval

How To Qualify For Mortgage With No Credit History

As mentioned earlier, lenders want to see strong aged credit tradelines and qualified income by borrowers.

  • However, there are those who do not believe in credit or had run ins with getting into debt with too much credit and just purchase items with cash
  • Unfortunately, not having credit or credit cards is bad for consumer credit scores and credit profile
  • There are folks who do not have credit scores because of not having credit tradelines
  • Home buyers can qualify for mortgage with no credit history
  • However, mortgage rates will be higher due to being downgraded to manual underwriting
  • Lenders evaluate mortgage applicants risk factor by reviewing their past payment history and open credit tradelines
  • Good aged payment history with creditors is a great indicator that borrowers will likely continue making timely payments
  • Strong emphasis is placed on borrowers past 12 months payment history
  • Most lenders will not approve anyone who has been late in the past 12 months
  • Outstanding collections and charged off accounts do not have to be paid to qualify for mortgages
  • However, timely payments is normally required to get an approve/eligible per automated underwriting system findings
  • Borrowers with no credit or credit history can qualify for mortgage with no credit history with a manual underwrite
  • Lenders will use non-traditional credit tradelines. in lieu of traditional credit tradelines
  • Non-traditional credit tradelines are creditors who do not report on credit bureaus

Non-Traditional Credit For Borrowers Who Need To Qualify For Mortgage With No Credit History

Here are examples of non-traditional credit tradelines:

  • Rental Verification
  • Utilities such as water bill, electric bills, gas bills
  • Insurance
  • Cell phone bills
  • Internet and Cable Service
  • Education Tuition

Experian is one out of three giant credit bureaus that will honor verification of rent history as a credit tradeline and will post it on consumer credit report. In order for Experian to accept this, the landlord needs to opt in and be proactive with Experian.

Paying rent and other monthly bills on time shows responsibility. I proves that consumers are financially responsible and are managing their payments. Paying regular monthly bills on time shows that the likelihood is high that mortgage borrowers will pay their housing payments on time.

Paying non-traditional creditors timely shows proof that consumers are responsible. Non-traditional creditors do not report to credit bureaus. All traditional creditors report to credit bureaus.

  • Non-Traditional creditors do not
  • Lenders can use non-traditional credit to qualify for mortgage with no credit history
  • However, it is strongly advised that consumers develop establishing traditional credit
  • Consumers with lower credit scores and/or no credit scores will have a difficult time getting traditional credit such as unsecured credit cards
  • The best way of getting traditional credit is to get three secured credit cards with at least $500 credit limit
  • The way secured credit cards work is consumers makes a security deposit
  • The credit card company will grant an equivalent amount of credit line to the amount of the deposit
  • For example, if consumer deposits a $500 deposit with the credit card company, the creditor will issue a $500 credit limit
  • Minimum payments is required
  • Late payments will be reported on credit bureaus

Secured credit card company will increase credit limit every six months with good payment history without requesting for additional deposit. There is no difference between secured and unsecured credit cards. Secured credit cards is the best and quickest way of developing and establishing credit.

Mortgage With No Credit History And Without Credit Scores

Home buyers can get qualified for mortgage with no credit history and without credit scores. The best mortgage loan program for borrowers applying for mortgage with no credit history and without credit scores is FHA Home Loans. Private lenders will originate and fund FHA Loans. HUD, the parent of FHA, insures private lenders in the event borrowers default on their FHA Loans and the property goes into foreclosure. HUD created FHA to promote home ownership for hard working Americans with low credit and less than perfect credit with only 3.5% down payment. Banks and private lenders offer FHA Home Loans to borrowers at very low rates and with only 3.5% down payment. Banks and lenders love originating and funding FHA Loans due to government guarantee in the even the loan goes bad. Borrowers can qualify for FHA Loans with a front end 46.9% front end and 56.9% back end debt to income ratio. FHA allows credit scores down to 500. However, any borrower with under 580 credit scores, 10% down payment is required. Outstanding collections and charged off accounts do not have to be paid to qualify for FHA Loans.

Do All FHA Lenders Have Same Mortgage Guidelines?

Not all FHA Lenders has the same FHA Mortgage Guidelines.

  • There are two types of FHA Lending Requirements
  • Every single FHA Lender needs to meet the minimum FHA Mortgage Guidelines set by HUD
  • However, most lenders will have overlays on FHA Loans
  • What are overlays?
  • Overlays are mortgage guidelines that are above and beyond the minimum FHA Guidelines set by HUD
  • As an example, we mentioned that FHA requires a 580 credit score for home buyers to qualify with 3.5% down payment
  • However, most banks have minimum credit score requirements of 640
  • Why would a bank have higher credit score requirements when FHA only requires 580 credit scores?
  • This is a perfect example of what a lender overlay is
  • Lenders can set their own higher lending requirements than those set by HUD

This is why if  borrower is turned down by one lender for a FHA Loan, it does not mean they do not qualify with a different lender. Gustan Cho Associates is one of the very few national lenders who do not have any overlays on government and conforming loans.

Just because you qualify for an FHA loan doesn’t mean the best mortgage lenders will open their mortgage doors to you.

Borrowers who are applying for mortgage with no credit history and no credit scores, it is best advised to consult with a lender who has no overlays on FHA Loans such as Gustan Cho Associates Mortgage Group. We are experts in helping borrowers qualify for mortgage with no credit history and no credit scores. Again, we have ZERO OVERLAYS and just go off automated findings of AUS.

If you’re currently renting, ask your landlord and service providers to report your payments to a processor that works with the credit reporting agencies.

Home buyers who need to qualify for mortgage with a direct lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Borrowers can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

1 Comment
  1. Gustan Cho, NMLS 873293 says

    The quickest way of getting a credit score for those who do not have credit scores due to no credit tradelines is for them to get secured credit cards. Secured credit cards is the best and fastest way of getting credit scores and boosting up credit scores. Secured credit cards is the best way of re-establishing credit for borrowers with no credit or borrowers with low credit scores.

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