Just because you don’t have a car payment, student loan, credit card bills or any other traditional trade lines tracked by the credit bureaus doesn’t mean you can’t qualify for a mortgage loan.
Many times borrowers looking for a mortgage lack sufficient traditional credit history to provide a lender with a realistic credit score. No big deal.
The good news for borrowers is that FHA loan qualifications consider non-traditional credit in cases where you might have insufficient trade lines with Experian, Equifax, and Trans Union.
Here’s how it works.
Non-Traditional Credit References
FHA stipulates that you the borrower must have 3 credit references from 2 groups of non-traditional credit sources.
Group 1 – The first group of references is weighted more heavily than the second because it is considered a more accurate predictor of your credit worthiness.
Group 1 consists of rental housing payments, utility payments (gas, electric, water). Also included are telephone, and cable TV bills.
Group 2 – FHA qualifications are possible by including payment references such as: insurance payments (medical, auto, life, renters ins), payment to day care, internet cell phone, a 12 month bank documented history of deposits resulting in increased balance. Group 2 also accepts individual loans where the repayment terms are written out and signed by both parties.
FHA Rules for Non-Traditional Credit
To qualify for an FHA loan with non-traditional credit you should have 3 positive credit references and at least one being a group 1-credit reference. To be accepted under FHA qualifications you must display – in summary:
- No late payments on rental housing (group1)
- No more than 1- 30 day late on other payments (group1)
- No collection accounts (other than medical) in the last 12 months.
This is certainly good news for those that lack traditional credit references and trade lines with the credit bureaus. FHA recognizes that non-traditional credit applicants can display credit responsibility, manage mortgages, and pay their bills on time thus should not be denied a fair chance at homeownership.
See the article below for all the details on group 2 credit references – as these are acceptable within certain guidelines for establishing a positive credit profile with FHA – enabling you to qualify for the home you thought was out of reach. It may be time to consider an FHA loan?
Hard working families that may have damaged credit and very little down payment can still experience the joy of home ownership with an FHA loan. Qualifying is much easier than you may think – visit: FHA Loan qualification
