March 26, 2015
There are many situations where a new borrower might want to apply for an FHA home loan, but without bringing a “traditional” credit history to the process. Do FHA loan rules permit a loan even when the borrower doesn’t have a typical credit history, has chosen not to use credit cards, etc?
HUD 4155.1, the FHA rulebook for lenders, does make provisions for this. There’s a section of the rules governing what the FHA terms a “Non-Traditional Credit Report” or NTMCR for short:
“NTMCRs are designed to assess the credit history of borrowers who do not have the types of trade references that normally appear on a traditional credit report. An NTMCR can be used as a
• substitute for a TRMCR or an RMCR for a borrower without a credit history with traditional credit grantors, or
• supplement to a traditional credit report that has an insufficient number of trade items reported.”
This information is found in HUD 4155.1 Chapter One, Section C, which also adds some restrictions on how the NTMCR can be used:
“An NTMCR cannot be used to
• enhance the credit history of a borrower with a poor payment record
• manufacture a credit report for a borrower without a verifiable credit history, or
• offset derogatory references found in the borrower’s traditional credit report, such as collections and judgments.”
What kind of credit references should a borrower who needs this type of credit report bring to the table or be prepared to furnish details for? Rental payments, utilities, insurance, leases, savings account deposit history and any other record of regular payments and financial dependability may be necessary.
Borrowers who rent from family members will need to provide proof of rent payment such as cancelled checks or other documentation to show a record of timely payment.
Your lender will have specific needs for this information (including how it may be delivered or furnished as part of the loan application/approval process) so it’s best to have a conversation about what you may be required to supply and how it can be sourced in order to complete your FHA loan paperwork.
Do you have FHA loan or refinance loan questions? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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