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When it comes to FHA, having no credit is better than bad credit

Bad credit, no credit, no problem. Well, not exactly.

When it comes to the FHA loan program having no credit is often times much better than having bad credit. Even though FHA is not a credit score driven loan program, if your score is below the 580 mark, well, lets just say things get really tough. In fact you may be turned down. The logic being that if you’re being scored, the program wants to see some semblance of a decent credit history.

However, if you don’t have a credit score, then FHA can be very advantages to you. The problem is most borrowers don’t know this. During the go-go days of the subprime phenom no one needed this kind of advantage. If you could fog a mirror you could get a loan, at least for the most part. In fact, very few loan officers are even aware of this facet of the FHA program. Ignorance aside, there is absolutely no reason for you to panic if you have no credit.

FHA allows for what is known as non-traditional credit. What this means is that if you can demonstrate four credit accounts in good standing then you are good as gold. These credit accounts could be your cell phone account, utility account, rent payments etc. You must be the account holder on all these accounts and demonstrate you have not been late on these bills within the past twelve months.

To demonstrate good standing the lender will also ask for a letter from these creditors stating the current status on these accounts. Make sure your loan officer checks with underwriting on the exact wording of the letters.

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So to rephrase: bad credit – problem, no credit – no problem. It may not have a ring to it but it could mean the difference between owning and renting.

Written By

Writer for national real estate opinion column, focusing on the improvement of the real estate industry by educating peers about technology, real estate legislation, ethics, practices and brokerage with the end result being that consumers have a better experience.



  1. Ken Jansen

    July 28, 2009 at 5:12 pm

    HI Shailesh,

    Can FHA help someone who has or is about to have a short sale on their record? I have had one Loan Officer tell me no bank will touch them for five year and another who said three years. Have the guidelines changed? Does it depend on the lender or do I have potentially one loan office who does not have the whole picture.



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