This morning I attended an FHA Underwriting web-conference. While I’ve been originating FHA Insured Loans for 21 years, I think it’s important to stay up to date with guideline changes. More importantly, the web conference gave me the opportunity to speak directly with an FHA Underwriter who sees FHA loans from all walks of life and from all over the country.
I had a few questions, but my primary question had to do with clients who don’t have established credit histories.
I’ve blogged about this before here at tcurranmortgage.com because this is a situation I encounter frequently here in the NY Metro region. Many of my clients are immigrants to the United States (just like ME!), and often they have limited or non-existent credit profiles.
This isn’t a BAD thing when applying for an FHA Insured mortgage loan. Let me put it simply: BAD credit is a BAD thing; NO credit is NOT a BAD thing.
And let’s not confuse “I have no credit” with the reality I often see after hearing that statement from a client and running a credit report: When you say you have NO credit, you really mean NONE, ZERO, ZILCH, NADA. You do NOT mean no credit cards today or auto loans today because you have seven collection accounts, a car reposession, and two defaulted student loans. That’s BAD.
When I run your credit report and encounter NO credit score due to NO credit history, I may still be able to assist the client with an FHA Insured Loan.
What we’ll do next is to establish what’s called an “Alternative Credit Profile.” We can accept other forms of credit that most established adult consumers have: Rental payment histories (cancelled rent checks), Car Insurance payment histories, Cell phone, utility bill, cable bill payment histories. All of these—and other similar items—are acceptable alternative credit references.
In the absence of a credit score and established credit history with credit cards, student loans, auto loans and etc. on a credit report, these alternative credit references are perfectly acceptable to help you obtain FHA mortgage financing to buy your first home.
The FHA Underwriter happily answered my query about such situations: YES, she is seeing many FHA loan approvals with the alternative credit histories in place of an established credit history and credit score for a consumer with NO CREDIT.