Applying For An FHA Loan Without A Credit History

Take a look at what the FHA loan rulebook, HUD 4155.1 Chapter Four, Section C says about how lenders must treat borrowers who come to the FHA loan process without a credit history:

“The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application. Some prospective borrowers may not have an established credit history. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from

• utility payment records
• rental payments
• automobile insurance payments, and
• other means of direct access from the credit provider, as described in HUD 4155.1 4.C.1.e.”

Why does the FHA make provisions for this type of loan applicant? Because some borrowers never took out credit cards or have minimal credit use on their record. This is true of some college students (especially those who might have parental assistance in addition to scholarships and grants) and those who have preferred to pay cash instead of buying on credit.

The reasons for choosing not to use credit are diverse; the FHA rules don’t allow the lender to turn a borrower away for a lack of credit history as long as the borrower has some way to show he/she has paid debts and met financial obligations on time, as stated in the above quote.

In some cases the lender may “choose to obtain independent verification of credit references. Lenders must document that the providers of non-traditional credit do exist, and verify the credit information. Documents confirming the existence of a non- traditional credit provider may include