FHA and lines of credit

[Anonymous]

My sister which is single went to the credit union to discuss purchasing a very humble 1 bdrm home for $38,000. The bank told her she had a credit score of 0 because she has no credit history and told her in order to get financed she must show proof of 3 lines of credit.

Unfortunately, my sister can only show proof of 2 lines of credit. (rent and car insurance from the past year). She meets all other guidelines.

Here is what I was reading on FHA's website.

NO CREDIT HISTORY

Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.

What are we missing? Or, was the CU just not considering FHA?

Thanks!

[mauve]

Neither of those are traditional lines of credit, and neither would give her a FICO score...well, unless they reported her 30 days late. 

A qualifying line of credit would be an installment loan or revolving credit like a credit card.  I'm talking about qualifying for a FICO score.  The line of credit needs to be open and reporting for 6 months for her to have a score.  Others can give you information on substitute options for mortgages. 

[Anonymous]

That is just FHA's minimum requirements for loan approval. Lender's requirements are often more than FHA's minimum. Hope that helps.

[Anonymous]

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@mauve wrote:

Neither of those are traditional lines of credit, and neither would give her a FICO score...well, unless they reported her 30 days late. 

A qualifying line of credit would be an installment loan or revolving credit like a credit card.  I'm talking about qualifying for a FICO score.  The line of credit needs to be open and reporting for 6 months for her to have a score.  Others can give you information on substitute options for mortgages. 

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So you are saying the "substitute options" may require 3 lines of credit then?

[Anonymous]

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@Anonymous wrote:

That is just FHA's minimum requirements for loan approval. Lender's requirements are often more than FHA's minimum. Hope that helps.

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Or find a bank that only requires 2 lines of credit?

[mauve]

I'm saying that neither of those items qualify as a line of credit in traditional fashion.

I don't know enough about mortgages to tell you about what else a bank may accept.

[ShanetheMortgageMan]

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@claydouglas76 wrote:

My sister which is single went to the credit union to discuss purchasing a very humble 1 bdrm home for $38,000. The bank told her she had a credit score of 0 because she has no credit history and told her in order to get financed she must show proof of 3 lines of credit.

Unfortunately, my sister can only show proof of 2 lines of credit. (rent and car insurance from the past year). She meets all other guidelines.

Here is what I was reading on FHA's website.

NO CREDIT HISTORY

Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.

What are we missing? Or, was the CU just not considering FHA?

Thanks!

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That information isn't from the Federal Housing Administration.

FHA loans require 3 trade lines of 12 months each.  When there isn't sufficient traditional trade lines, such as credit cards, car loans, student loans or anything that is reported on the credit report, then non-traditional trade lines can substitute.  Non-traditional trade lines are rent, utilites, car insurance, cell phone are the most commonly used.  Not all lenders will accept non-traditional credit.  Non-traditional credit will not work if there are negatives of any sort on their credit report.