Homebuyers turned away due to lack of credit or credit scores do have a rather unconventional way to be approved without traditional credit or even a credit score.

Nontraditional credit is a widely used form of credit verification used by certain mortgage lenders for loan applicants who prefer not to use traditional forms of credit such as credit cards or car loans yet can provide a payment history on similar forms of ‘nontraditional" credit.

For several years now, mortgage lenders have recognized that loan applicants who choose to use non-traditional credit in place of traditional credit should not be penalized or discriminated, since proper verification of these non-traditional forms of credit can be treated to that of traditional forms of credit.

Non-traditional credit falls into two distinct categories that provide balance in assessing various forms of non-traditional credit.  The categories are as follows:

Category I: Rent payments for an apartment or home, and utility bills such as electricity, water, telephone, propane gas, or cable TV. Rental payments made payable to a property management company for a home or apartment will usually require a Verification of Deposit, with no additional documentation required. However, if rental payments are made directly to a family member or private individual, 12 months of cancelled bank checks will be required.  A letter of credit from utility companies will suffice as acceptable non-traditional credit.

Category II: Insurance payments, such as life, medical, automobile, & renter's insurance; child care providers, school tuition; department, furniture, appliance stores; specialty stores, rent to own; medical bills not covered by insurance; and Internet/cell phone services; savings accounts with regular monthly deposits (payroll deductions are not permissible)   Personal loans from an individual with repayment terms in writing and supported by cancelled checks for 12 months are acceptable.

A minimum of three (3) credit references, including at least one (1) from Category I, must reflect 12 months of the most recent activity from the date of application. Credit from Category I is considered most important since it is the greatest indicator of a borrower's future housing payment performance.  Borrowers with no credit references contained within Category I is considered insufficient by most underwriting standards.

All forms of non-traditional credit will have to be verified by an independent credit bureau.  As each item of credit is verified, it will be added to your credit file as a Non-Traditional Mortgage Credit Report in the same manner as a traditional mortgage credit report.  The name of the credit reference, as well as the date of opening, high credit, current status of the account, payment history, and any unpaid balances will be required for consideration by most mortgage loan underwriters. Although non-traditional credit will not trigger a credit score as required by most banks and similar lending institutions, a clear, consistent credit history reflecting no accounts delinquent more than 30 days in the most recent 12 month period will be treated similar to that of someone with good to very good credit scores.

It should be noted that borrowers who wish to apply for a mortgage loan using non-traditional credit will also be required to occupy the property as their primary residence AND may be required to have a minimum of two month's cash reserves at the time of loan settlement.

If you have been turned down for a mortgage loan by a bank or similar lending institution due to insufficient credit but have sufficient non-traditional credit, you may be able to finally purchase the home you have always wanted but could not get due to insufficient credit.  With home prices more affordable now than in years past, now may be the best time for you to finance your next home using non-traditional credit.  Loan programs are available through qualified mortgage lenders offering low, fixed interest rate mortgage loans as well as low down payments.

For more information about how non-traditional credit can benefit you, please call (941) 206-6000.

Mike Sikorski, MBA, GRI

Licensed Real Estate Broker

Licensed Mortgage Broker

Florida Realty Network LLC

22079 Kimble Avenue

Port Charlotte, Fl. 33952

(941) 206-6000

Mike@FloridaRealty.net