An Alternative Route To Mortgage Approval

For many homebuyers, establishing credit came naturally once they began working, applied for a credit card, car loan or paid back student loans. But what about potential homebuyers who don't have a credit score either because they are credit card averse or have yet to build up a substantive credit history -- can they still apply for a mortgage?

The answer is "yes," but "it's exceedingly difficult to obtain a mortgage without a credit score," says Tim Ross, president and CEO of Ross Mortgage Corp. in Royal Oak, Mich. "Lenders use automated underwriting systems that base a loan decision on certain criteria including a credit score. But there are some non-traditional sources that can be used for credit verification."

Mortgage lenders typically require a credit score of at least 620 or 640 to even consider an applicant for a loan.

Whether you prefer not to use credit cards, are new to this country or are simply a younger borrower who hasn't built up enough credit history, there are some alternative sources mortgage lenders can use to determine your credit risk.

While most lenders require three or more sources of credit, Clint Madison, a senior mortgage banker with Envoy Mortgage in Walnut Creek, Calif., says, "I've worked with borrowers who have a slim credit file and been able to get them approved for a loan. The first thing we look for would be 12 to 24 months of cancelled checks or verification from a landlord of on-time rent payments."

Alternative sources of credit

Here are several other items that can be used for non-traditional credit verification, according to Ross:
  • Utility bills for gas, electricity or water as long as they are paid separately from your monthly rent
  • Phone and cable bills
  • Car insurance, renter's insurance, life insurance payments or medical insurance payments if they are not paid by payroll deduction
  • Child care or school tuition payments

The more evidence you can provide that indicates a history of on-time payments the greater your chances of qualifying.