We can close indivdual with no Credit scores but we have to be able to develop a non traditional credit profile as stated below:

The following are the type of credit references that may be used for establishing and evaluating a nontraditional credit history. The credit references are classified into two groups:

Group I

· Rental housing payments must be independently verified. If the borrower is renting from a family member, the verification should be supported with the most recent 12 months of cancelled checks.

· Utility company reference, including gas, electricity, water, land-line home telephone service, and cable TV (as long as not included in the rental housing payment).

Group II

· Insurance coverage, including medical, auto, life, or renter's insurance, that are not payroll deducted.

· Payments to child care providers (made to businesses providing such services).

· School tuition

· Retail stores, such as department, furniture, appliance, and specialty stores

· Rent to own businesses for furniture and appliances.

· Payment of medical bills not covered by insurance

· A documented 12-month history of saving by regular deposits (at least quarterly/non-payroll deducted/no Non-Sufficient Funds (NSF) checks reflected), resulting in an increasing balance to the account.

· Automobile lease

· Personal loans from individuals with repayment terms in writing that are supported by cancelled checks to document the payments.

Evaluating Nontraditional Credit References

The following provides guidance in establishing whether a borrower has sufficient or insufficient credit references for evaluating their bill paying habits. In addition, it provides guidance for those with no credit references.

Sufficient Credit

Three (3) credit references, including at least one from Group I, which covers the most recent 12 months of activity from the date of application. Group I references should be exhausted prior to considering Group II for eligibility purposes, as Group I is considered more indicative of a borrower's future housing payment performance. A satisfactory credit history, at least 12 months in duration, is to include:

· No history of delinquency on rental housing payments.

· No more than one 30-day delinquency on payments due to other creditors.

· No collection accounts/court records reporting (other than medical bills) open and/or filed within the last 12 months.

Note: Group I or Group II references may be used to augment a thin file traditional credit report to provide the required three references.

Insufficient Credit

Borrowers with no Group I trade references; those that only have Group II references or a thin file traditional credit report that cannot be supplemented to meet FHA guidelines, are considered to have insufficient credit. However, they may still be determined to have a satisfactory credit history if the following requirements are met:

· Credit history must be at least 12 months in duration.

· No more than one 30-day delinquency on payments due to any Group II reference

· No collection accounts/court records reporting (other than medical bills) open and/or filed within the last 12 months.

· Qualifying ratios are computed only on those occupying the property and obligated on the loan and may not exceed 31% for the payment-to-income ratio and 43% for the total debt-to-income ratio. Compensating factors are not applicable.

· Borrowers have at least two months of cash reserves following mortgage closing from their own funds (no cash gifts from any source should be counted in the cash reserves for borrowers in this category).

No Credit References

In order for borrowers with no credit references to enhance the likelihood of homeownership sustainability, they must meet the following requirements:

· Qualifying ratios are computed only on those occupying the property and obligated on the loan and may not exceed 31% for the payment-to-income ratio and 43% for the total debt-to-income ratio. Compensating factors are not applicable.

· Borrowers have at least two months of cash reserves following mortgage closing from their own funds (no cash gifts from any source should be counted in the cash reserves for borrowers in this category).

Nontraditional Credit Report

FHA prefers that all nontraditional credit references be verified by a credit bureau and reported back to the lender as a nontraditional mortgage credit report (NTMCR) in the same manner as traditional credit references. For additional information, refer to the Credit Report Requirements policy.

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