What is considered a Sufficent Credit File?

If you are a prospective first time buyer you will probably be interested to know what will generally be considered a "Sufficient Credit File" to meet minimum underwriting standards today for a conventional mortgage (and government as well in most cases).

Though guidelines are constantly in flux today, more than ever really, basic principles will generally apply. An easy way to answer the question as to "what a Sufficient Credit File is" can be stated by stating what an Insufficient Credit File is considered to be along with a brief discussion as to possibly usable nontraditional credit references.

Insufficient credit is defined as any one, or more of the following, no matter whether the credit score meets or exceeds the minimum score required for the program applied for:

• Borrower has less than three (3) major trade lines on their credit report
• No trade lines activity in the most recent 12 months on their credit report
• No trade lines are shown that have at least a 24-month history in their credit report

These minimum guidelines must be therefore establish the threshold for what constitutes a Sufficient Credit File. Nontraditional credit references are those not typically found on a standard credit report, or that are obtained from a source other than the credit report. They may be required to document an acceptable credit history when a borrower(s) does not have a valid credit score or does not have sufficient traditional credit references as shown above. Non-taditional credit references can be used to supplement the borrowers credit history. However, they cannot be used to offset adverse credit on the credit report.

Non-Traditional Credit Reference (Manual Underwriting Required)

The following requirements must typically be met to establish a non-traditional credit history, though other standards be applied and specific documentation requirements can be obtained by calling us:

• Minimum of four non-traditional and/or traditional references, each currently active or active in the most recent 12 months.
• Each reference must have a minimum 12 month payment history and
• One of the four references must include a 12 month housing payment history from a mortgage or previous rent.
• No late payments can be reported, and
• The payment schedule for any non-traditional credit reference must call for payments at regular intervals that are no longer than every three months.

Non-Traditional Credit References - Tiers

They are ranked in order of importance, with Tier I being the most important and Tier III the least. In all cases the traditional credit if any is more important tany any tier.

Tier I

• Rental housing- a Verification of Rent (VOR) from a professional management company or private party
• Utilities (if not included in the rental housing payment) - electricity, gas, water, telephone service, cell phone and payments for cable/satellite television service
• Installment loan with a financial institution not being reported to the credit bureau

Tier II

• Insurance premiums (excluding payroll deductions) - medical, life, automobile, renter's
• A documented savings history that includes an increasing balance as the result of consistant monthly deposits over a 12-month period

Tier III

• Child care
• Local stores - department, furniture, appliance, specialty
• Rental payments related to durable goods (appliances, furniture, etc.)
• Medical bills
• School tuition
• 401k
• Medical insurance premiums(not including payroll deductions)
• Life insurance premiums (not including payroll deductions)

Minimum Documentation Requirements

• When the credit is a relative or other person having an established relationship with the borrower, canceled checks, bank statements or money order receipts are the only acceptable forms of verification to evidence the payments are of a continuing nature and have been paid in a timely manner.
• Cask receipts are not acceptable.

These minimun standards must be met even if you are applying with a non-occupying co-borrower. Other guidelines will apply on qualifying ratios in that example as well.

Hope this data helps answer some questions you may have.