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. Traditional credit tradelines are not an agency mortgage requirement. However, many lenders require a certain number of credit tradelines from borrowers as part of their lender overlays. There are people that have no credit scores. This is because they have no credit tradelines reporting on the three credit bureaus. Many recent college graduates do not have credit scores because they did not open any credit accounts during their time as full-time students. Recent college graduates are eligible to qualify for a mortgage without prior work experience if they get a new full-time job for the first time. If recent college graduates apply for a mortgage without a credit score, lenders can use non-traditional credit tradelines in lieu of traditional credit tradelines. To be considered a credit tradeline, the consumer needs to have been making payments to the creditor for at least 12 months.
What Is The Definition Of Credit Tradelines
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 Required By Mortgage Lenders
Mortgage lenders consider the borrower’s past credit payment history very important. A borrower’s prior payment history is a good indication of the future payment history of the borrower. Consumers irresponsible with their payments to creditors in the past will likely continue to be irresponsible paying their bills in the future.
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. Creditors of traditional credit tradelines 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 the past credit performance of borrowers via past payment history on their credit report. The past payment behavior of consumers is a good indicator on the future payment behavior. However, if borrowers do not show any credit tradelines that report on their credit report, that could be an issue. Home Buyers without a credit score or no traditional credit tradelines 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. Examples 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 are 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.
Many first-time homebuyers or recent college graduates who do not have a credit score may need to use non-traditional credit tradelines to qualify for a mortgage. If a lender uses non-traditional credit tradelines, they need to do a manual underwrite. FHA and VA loans are the only two loan programs that allow manual underwriting on home loans. Mortgage Borrowers who need to qualify for a mortgage using non-traditional credit tradelines with a lender licensed in multiple states with no lender overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. We have a national reputation for being able to do loans other mortgage companies cannot do. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies due to their lender overlays or due to a last-minute mortgage loan denial. Gustan Cho Associates is a mortgage banker, correspondent lender, and mortgage broker. We have our in-house underwriters for FHA, VA, USDA, and conventional loans and have the ability to broker non-QM and alternative mortgage loans such as no-doc home loans, stated income mortgages, bank statement loans, P and L stated income mortgages, and dozens of other loan programs.
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November 27, 2021 - 6 min read