Thursday, June 4, 2009

New Guidelines for Non-Traditional Credit

Fannie Mae is changing its requirements for non-traditional credit. Non-traditional credit is used when a borrower does not have a credit score. The underwriting guidelines allow a lender to develop a credit history for the borrower based on four alternative credit lines, which are credit accounts that do not appear on a credit report. Some examples are rent, utilities, cell phone payments, car insurance payments, etc. This has always been allowed. The change is that now, rent payments MUST be one of the alternative credit lines. To prove rent has been paid on time, the borrower needs to provide the previous 12 months of rent checks. If the rent is paid to a management company, a written verification of rent from the management company is acceptable in lieu of the rent checks.

FHA guidelines are slightly different than Fannie Mae guidelines. FHA only requires three alternative credit lines (not four, like Fannie Mae), and there is no requirement that rent payments be one of the alternative credit lines. However, individual lenders are allowed to add their own requirements on top of FHA's guidelines, and some lenders do require that rent be included as one of the alternative credit lines.

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