Non-Traditional Credit Tradelines To Qualify For Mortgage
This Article Is About Non-Traditional Credit Tradelines To Qualify For Mortgage
Borrowers without any credit tradelines reporting on credit reports can still qualify for a mortgage.
- There are times where borrowers with no credit history on their credit report will not have any credit scores
- Borrowers without traditional credit tradelines and without a credit score can still qualify for a mortgage
- Non-traditional credit tradelines can be used in lieu of traditional credit tradelines
- Credit tradelines are credit accounts consumers had for at least 12 months
- To be considered a credit tradeline to be able to be used to qualify for a mortgage loan, the consumer needs to have it opened for at least 12 months
- Verification of rent is considered a credit tradeline
- Traditional credit tradelines are not mandatory to qualify for a mortgage
- Lenders normally want to see at least three traditional credit tradelines seasoned for at least 12 months
- There are lenders where they may require three tradelines that have been seasoned for 24 months
- However, credit tradelines seasoned for 24 months is not an agency guideline but rather a lender overlay by the individual lender
- Lender overlays are higher lending requirements that are above and beyond the minimum agency mortgage guidelines
- Agency guidelines allow borrowers with no credit tradelines to use non-traditional credit
- Gustan Cho Associates has no lender overlays on government and conventional loans
In this article, we will cover and discuss Non-Traditional Credit Tradelines To Qualify For Mortgage.
Credit Tradelines Defined
Home Buyers who are applying for a 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
- Creditors report the payment history on all three credit bureaus
- To be considered a traditional credit tradeline, the credit account needs to report to credit bureaus for the past 12 months
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 are 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 applicant’s 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 are 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 a mortgage.
Using Non-Traditional Credit Tradelines Versus Traditional
For home buyers applying for a mortgage loan, the majority of the mortgage lenders will require credit tradelines that have been established for at least 12 months and that are in good standing.
- The majority of lenders require three established credit tradelines
- There are 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 lenders that will not accept a loan application if applicants do not have enough tradelines
This holds true even though they qualify with sufficient income and meet minimum credit score requirements.
Non-Traditional Credit Tradelines In Mortgage Qualification
Borrowers without 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 borrower has 12 months of canceled checks and/or 12 months of bank statements showing rental payments being deducted and paid to the 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 late payments
- Rental verification can only be used if and only if the borrower can provide 12 months canceled 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 the down payment and closing costs for FHA
2 years of 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 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 the 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 a mortgage using non-traditional credit tradelines with a direct lender with no overlays can 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, and holidays.