Nontraditional Credit For Borrowers With No Credit Tradelines
Credit score <620 require verification of mortgage/rental history. This does not apply to borrowers who are currently living rent free provided the rent free status is documented. Borrower’s living rent-free during the most recent 12 months are not allowed addititional requirements.
Nontraditional Credit May Be Used For Borrowers With No Credit Tradelines
Nontraditional credit must be documented using a Non-Traditional Mortgage Credit Report (NTMCR). Direct verifications may be obtained only when a NTMCR is impractical or the service is not available.
Nontraditional credit may be used when the borrower does not have the type of credit that appears on a traditional credit report or to supplement an insufficient number of tradelines.
Nontraditional credit may not be used to:
1. Offset derogatory credit; or
2. Create a credit report for a borrower without a verifiable credit history; or
3. Enhance a poor payment history
Nontraditional credit must:
Include three credit references.
Rental verification is considered nontraditional credit and has tons of weight over any other nontraditional credit sources. Medical, life, auto or renters insurance coverage that is not payroll deducted can also be considered nontraditional credit.
Payment to child care providers – made to a business providing such services are also considered nontraditional credit. The following are considered nontraditional credit:
1. School tuition
2. Retail stores – department, furniture, appliance stores, specialty stores; rent to own – i.e., furniture, appliances .
3. Payment of medical bills not covered by insurance is considered nontraditional credit.
4. Internet/cell phone services are considered nontraditional credit.
Documented 12 month history of saving by regular, non-payroll deducted deposits resulting in an increasing balance to the account. No NSF activity reported.
5. Automobile leases.
6. Personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments.
Non-traditional credit references must include a minimum of 12 months history with:
1. No history of delinquency on rental housing payments.
2. No more than one 30-day late payment on all other references.
3. No collection accounts / court records reporting (other than medical) within the last 12 months.
Insufficient Nontraditional Credit
For borrowers with no credit references :
1. A satisfactory credit history with at least 12 months of history must include no more than one 30-day delinquency, and no collection accounts/court records (other than medical) filed within the last 12 months, and
2. Ratios may not exceed 31%/43% and must be computed only on those borrowers occupying the property. Ratio increases based on compensating factors are not allowed.
Two months cash reserves from the borrower’s own funds are required. Gift funds may not be used to satisfy this requirement.