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FHA Loans and Non-Traditional Credit

April 25, 2013


One commonly asked question about FHA mortgage loans involves the eligibility of borrowers who don’t have what are considered “traditional” credit histories. Can a borrower with little or no credit still qualify for an FHA loan?

FHA loan rules do make provisions for those who have little credit history that can be researched via a typical credit bureau report. In cases like these, the lender is required to review certain types of documentation to verify the borrower is a good credit risk.

According to HUD 4155.1, “In order for the underwriter to determine that a borrower has sufficient credit references to help evaluate bill paying habits, the credit history must…include three credit references” including at least one of the following:

  • Rental housing payments (subject to independent verification if the borrower is a renter)
  • Utility company reference (if not included in the rental housing payment)” which can include gas, electricity, water,  land-line home telephone service, and cable TV.”

FHA loan rules add that if the loan applicant is renting property from a relative, “the lender should request independent documents to prove regularity of payments, such as cancelled checks.”

Additional documentation may also be required in the form of the following, according to HUD 4155.1 Chapter One:

  • Insurance premiums not payroll deducted (for example, medical, auto, life, renter’s insurance)
  • Payment to child care providers made to businesses that provide such services
  • School tuition
  • Retail stores credit cards (for example, from department, furniture, appliance stores, or specialty stores)
  • Rent-to-own (for example, furniture, appliances)
  • Payment of that part of medical bills not covered by insurance
  • Internet/cell phone services

You can discuss providing these items with the lender–each FHA loan situation is different and your loan officer may have certain requirements or documentation needs you’ll need to meet for your application to be considered complete.

Do you have questions about FHA home loans? Ask us in the comments section.

Joe Wallace - Staff Writer

By Joe Wallace

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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