No scores? No problem. Use non-traditional credit.

[ShanetheMortgageMan]

Most people think that credit scores are required for mortgage financing, and for a lot of situations that is true.  However with FHA, VA, USDA and even Fannie Mae financing (that means conforming loan programs) you can purchase without any credit scores as long as you have sufficient non-traditional credit references as well as your credit report is free of delinquent marks (late payments, collections, BK, foreclosure, etc) as non-traditional credit cannot be used to offset delinquent credit.

What are non-traditional credit references?  

They are items that do not normally appear on a credit report, such as, but not limited to:

- Rental history 

- Utility Companies (gas, electric, water, landline home phone, or cable TV)

- Insurance (non pay-roll deducted medical, life, auto, renters)

- Child care payments made to a business

- School tuition

- Retail stores (department, furniture, appliance, specialty, rent-to-own, internet/cell phones)

- 12-month savings pattern evidenced by regular non-payroll deposits

- Personal loans with evidence of payment terms and 12 months canceled checks

What "sufficient" in that sentence above means is that you'd have at least 3 of them, each would have at least 12 months of payment history, and all payments made on time.  Fannie Mae is slightly different, they require 4 to 6 credit references, and one of the non-traditional credit references needs to be housing related (rent, utilities, etc).

How do you verify non-traditional credit references?  

For most, such as utilities & insurance (and others, depending on what they are), you can request a "Letter of Credit".  These are documents often in letter/summary format which will include the creditor’s name (often it's on their letterhead), date account was opened, current status of account (open, closed, in default, etc), payment history (in a "number of payments past due" format), current balance (if any), and required payment amount.  Statements such as "satisfactory", "good", and "pays as agreed" in relation to payment history are not typically acceptable.

Supporting documentation may be required if the underwriter feels it's needed (which tends not to be very frequent), such as consecutive cancelled checks showing payment, 12 months of bills marked "paid" to show payments were timely, and bank statements can also be used to show payment.  Again, it’s not a very common requirement unless it's apparent (such as a personal loan).

One exception to the "if the underwriter feels it's needed" part is when it comes to rental history from a private landlord (as opposed to a property management or leasing company).  In that situation, either copies of cancelled rent checks or 12 months of bank statements showing withdraws on the same approximate date for the exact amount as rent would be required.  In addition when rent is verified the lender has the landlord complete a Verification of Rent form which asks to confirm when you began renting, the amount of rent, payment history, and gives the landlord a spot to write in any optional comments.