Loan Modification

Getting a Home Loan When You Have No Credit

By Gina Pogol

It?s a catch-22: once you have a nice credit score, you can easily get approved for credit — but how do you get the nice credit score in the first place? Um, how about with a mortgage?

Yes, you can get an FHA mortgage with no credit score. The reason mortgage lenders look at your credit history, analyzing what they call “trade lines,” is that they assume that the way you have honored your obligations to these other creditors predicts the way you will repay a mortgage. Without a credit history, they don?t easily have that information. However, that doesn?t mean that you can?t get a mortgage; it means that you and your lender will need to work a bit more.

Some analysts claim that fifty million people don’t have a full credit file -? but most do have a history of paying regular bills like rent, utilities, insurance premiums, and phone or Internet charges.  And FHA states that there is nothing wrong with paying as you go and avoiding debt.

Lenders aren?t allowed to discriminate against you for not having traditional credit. FHA has guidelines that underwriters must follow when evaluating your application if you don?t have a traditional credit score or history.

FHA requires that lenders develop or buy a Non-Traditional Mortgage Credit Report (NTMCR) from a credit reporting agency . If you have sufficient credit to generate a credit score, you don’t get to use a non-traditional report, so you can’t use an NTMCR to offset bad traditional credit. In creating an NTMCR, lenders can include rental payment history or utilities that are paid at least once every three months. You can count a series of regular, voluntary payments to your savings account as an obligation. So, aspiring homeowner, it’s crucial that you pay everything absolutely on time?even for things like utilities that don’t normally report to credit bureaus ?- because that will be counted on your mortgage application. Don’t bounce any checks, either — your bank statements will be looked at and they will count against you. If you can set up automatic deposits to a savings account (a great way to save up your down payment, too), it can help you nail that series of regular voluntary deposits.

Fannie Mae estimates that five million renters without credit scores can afford to purchase a home. Don?t let the lack of traditional credit keep you from realizing your dream of home ownership.

Full post as published by FHA Mortgage Guide on February 19, 2010 (boomark / email).