Have you ever had a borrower with only one or two FICO scores or a borrower who has yet to establish a credit profile? Well, if you have then you know how challenging this can be when attempting to secure a loan through conventional means. When using FHA financing you can build alternate forms of credit to build a credit profile.
The minimum FHA requirements with regard to credit are:
- 3 open/active credit accounts for 12 months.
- For a borrower with 1 or more FICO scores, only the above needs to be met.
- For a borrower with no scores at all the following applies.
In the above instances there are really only two types of borrowers.
Types:
- Non-Traditional Credit Borrower
- Insufficient Credit borrower
How do you determine which type fits your borrower?
It will depend on the sources of their alternate credit. Listed below are 2 groups of acceptable credit sources. If you can provide atleast 1 alternate credit from group 1 then your borrower is considered a Non-traditional Credit Borrower. If you can supply alternate credit from group 2 your borrower is considered an Insufficient Credit Borrower.
Group 1 Group 2
a. Rental/Housing payment a. Auto Insurance
b. Utilities (gas,electric, water) b. Child Care
c. Land line telephone c. Cell phone
d. Cable d. Personal loans
e. Internet ISP carrier
f. Retail Store (eg. Rent-to-Own)
g. History of savings
Once you've determined the type of borrower you have, the following requirements apply:
Non-Traditional Credit Borrowers:
a. 0x30 rental history.
b. No more than 1x30 in the last 12 months for the other alternate credit accounts.
c. No collection accounts or public records in the last 12 months
Insufficient Credit Borrowers:
a. No more than 1x30 on any accounts.
b. No collection accounts or public records in the last 12 months.
c. Qualifying ratio's are based solely on the occupant borrower(s).
d. The standard FHA ratios apply (31/43) and cannot be exceeded.
e. 2 months reserves required (cannot be gifted).
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