Using Non Traditional Credit Tradelines To Qualify For Mortgage

Using Non Traditional Credit Tradelines To Qualify For Mortgage

This BLOG On Using Non Traditional Credit Tradelines To Qualify For Mortgage Was UPDATED On December 6th, 2017

Home Buyers who are applying for mortgage will be asked if they have any credit tradelines. A traditional credit tradeline is when a consumer has established credit with a creditor for at least the past 12 months and the creditor reports the payment history on all three credit bureaus. Here are examples of traditional tradelines:

  • Revolving credit accounts
  • Auto payments
  • Mortgage payments
  • Student Loan payments
  • Installment Loans

All the above tradelines report to credit reporting agencies and is considered a credit tradeline if the consumer has had it for at least a year.

Why Are Credit Tradelines Important

When a creditor looks at a credit applicants credit profile, they do not just look at the credit scores.

  • Creditors will review the overall payment history of the consumer
  • Past payment patterns normally reflect future payment habits
  • This is why credit tradelines is so important
  • Mortgage Lenders will want to see past credit performance of borrowers via past payment history on their credit report

However, if borrowers do not show any credit tradelines that report on their credit report, that could be an issue. Home Buyers can qualify for home loans using non traditional credit tradelines to qualify for mortgage.

Using Non Traditional Credit Tradelines Versus Traditional

Home Buyers applying for a mortgage loan, the majority of the mortgage lenders will require credit tradelines that has been established for at least 12 months and that is in good standing.

  • Majority of the mortgage lenders require three established credit tradelines
  • There are mortgage lenders that will require up to five credit tradelines
  • Example of tradelines include credit cards, automobile loans, student loans, installment loans, and other types of revolving and installment loans
  • There are mortgage lenders that will not accept mortgage loan application if applicants do not have enough tradelines even though they qualify with sufficient income and meet minimum credit score requirements

Non-Traditional Credit Tradelines In Mortgage Qualification

For mortgage loan borrowers who do not have sufficient credit tradelines, non traditional credit tradelines can be used to satisfy the credit tradelines requirements.

  • Non traditional credit tradelines are credit tradelines such as rental payments, utility payments, and other means of credit payments that do not report to the credit reporting agencies
  • Rental verification can only be used if the mortgage loan borrower has 12 months of cancelled checks and/or 12 months bank statements showing rental payments being deducted and paid to landlord
  • Or by having the property manager complete a VOR form stating that the renter has been timely on their monthly rental payments for the past 12 months

Non Traditional Credit Tradelines In Lieu Of Borrowers With No Credit

Non Traditional Credit Tradelines requirements:

  • A minimum of 3 credit references each rated for 12 months payment history is required.
  • No housing lates
  • Rental verification can only be used if and only if the borrower can provide 12 months cancelled checks with no late payments in the prior 12 months if the renter is renting from a private individual
  • For those renting from a licensed property management company, a letter stating that the renter has made timely payments for the past 12 months can be used in lieu of canceled checks
  • Maximum one thirty day late payment with the other credit references in the previous 12 months
  • There can be no major adverse or public records filed in the last 12 months
  • All loans with non-traditional credit require a manual underwrite
  • DTI can be up to 50% DTI with compensating factors
  • Gift funds allowed for down payment and closing costs for FHA
  • 2 years tax returns and tax transcripts required and must follow standard FHA guidelines

Add New Credit Through Secured Credit Cards

Home Buyers purchasing a new home and do not have credit, I strongly recommend that they start establishing new credit as soon as possible.

  • The best and fastest way of establishing new credit is by getting secured credit cards
  • Make sure to get secured credit cards that report to all three credit reporting agencies
  • I suggest that mortgage borrowers get three secured credit cards with at least a $500 credit limit
  • Make sure not to have a credit balance greater than 10% of credit limit in order to maximize credit scores
  • By following these tips, each secured credit card can boost credit scores by at least 20 points or more

Mortgage Borrowers who need to qualify for mortgage using non traditional credit tradelines with a direct lender with no overlays can contact us at 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, and holidays.

Related> Non-Traditional Credit Tradelines

Related> Non-Traditional Credit In Mortgage Qualification

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