Selling Guide

Published June 3, 2020

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B3-5.4-02, Number and Types of Nontraditional Credit Sources (08/30/2016)


This topic contains information on nontraditional credit sources, including


Number of Nontraditional Credit Sources Required

The number of nontraditional credit sources that must be documented for a borrower without a credit score differs depending on the underwriting method and loan product, as described in the table below:

Number of Nontraditional Credit Sources Required
Underwriting Method Loans other than HomeReady Loans HomeReady Loans
Manually underwritten loans
  • Four sources for each borrower without a credit score

  • Three sources for each borrower without a credit score

  • If there is a borrower on the loan without a credit score who cannot document a nontraditional credit profile (because the borrower has no nontraditional credit sources), the transaction is still eligible, provided no more than 30% of the qualifying income for the mortgage loan comes from that borrower.

Loans underwritten through DU
  • If no borrower has a credit score

    • at least two sources for each borrower

  • If the borrower(s) with a credit score contributes

    • 50% or less of qualifying income, at least two sources for each borrower without a credit score.

    • more than 50% of qualifying income, then no nontraditional credit history is required for the borrower(s) without a credit score.


Eligible Types of Nontraditional Credit

The types of credit that can be used to develop a nontraditional credit history are those that require the borrower to make periodic payments on a regular basis with intervals that are no longer than every three months.

The lender must conduct an informational interview with the borrower to identify all of the sources from which the borrower obtained credit over the most recent consecutive 12 months. If the lender is requesting a nontraditional mortgage credit report from a consumer reporting agency, the agency will conduct the borrower interview and obtain the list of available nontraditional credit sources.

In all cases, the payment history for each credit reference must be documented for the most recent consecutive 12-month period. All credit sources must be included, not just those that reflect acceptable performance.

The following nontraditional credit sources may be used to develop a nontraditional credit history for the borrower:

  • Rental housing payments. This includes payments made to a landlord or management company. Also included are payments made on a privately-held mortgage loan that is not reported to the credit bureaus, contract for deed payments and other similar arrangements, provided the payments are related to the borrower’s housing.

    • Loans underwritten through DU where a nontraditional credit history is required must include rental housing payments as one source of nontraditional credit.

    • Manually underwritten loans do not require that one source of nontraditional credit be rental housing payments. However, if no borrower on the loan is able to document a rental payment history, a minimum of 12 months’ reserves must be documented.

  • Utilities, such as electricity, gas, water, telephone service, television, and internet service providers. If utilities are included in the rental housing payment, they cannot be considered a separate source of nontraditional credit. Utilities can be considered a source of nontraditional credit only if the payment history can be separately documented.

  • Medical insurance coverage (excluding payroll deductions)

  • Automobile insurance payments

  • Cell phone payments

  • Life insurance policies (excluding payroll deductions)

  • Payments for household or renter’s insurance

  • Payments to local stores, such as department stores, furniture stores, appliance stores

  • Rental payments for durable goods, such as automobiles

  • Payment of medical bills

  • Payment of school tuition

  • Payments for child care

  • A loan obtained from an individual, provided the repayment terms can be documented in a written agreement

  • Checking account, savings account, voluntary payments made to a payroll savings plan or contributions to a stock purchase plan, provided the records reflect an increasing balance as a result of periodic deposits over at least the most recent 12 months. Contributions must have been made no less than quarterly.

  • Wire remittance statements demonstrating a consistent amount of funds remitted over the most recent 12-month period.

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