Alternative Credit & FHA Home Loan Approval

Phoenix Arizona FHA Mortgage – Alternative Credit


There are basic credit related requirements that each Phoenix area home loan applicant must meet  in order to obtain mortgage approval.  Each different type of home loan comes custom fit with its own set of credit guidelines or “rules”.  When applying for an Arizona FHA mortgage, each borrower must typically show their Phoenix Arizona FHA mortgage lender a minimum of 3  trade lines that have reported at least 12 months of activity or payment history.  A trade line is equal to one creditor reporting on your credit report – for ex: an auto loan is 1 trade line, a credit card is 1 trade-line.

These trade lines or accounts must have been opened  at some point within the past 12 months (meaning the accounts/trade lines can be closed however they must have been closed within the past 12 months) in order to meet FHA mortgage guidelines.  When an Arizona home buyer does not have the required minimum trade lines on their credit report, FHA gives us an alternative solution in order to help our Arizona FHA clients meet the credit/trade line guidelines that are needed for FHA mortgage approval.  HUD/FHA allows us to use what is called “alternative credit.”

What Can be Used as Alternative Credit on FHA Loans?

Essentially, the alternative credit process allows us to use the payment history from companies or creditors that an Arizona FHA borrower makes regular monthly payments to that do NOT report on their credit report as credit!  Some examples of alternative credit include:

  1. Utility Bill
  2. Cable Bill
  3. Car Insurance Bill
  4. Cell Phone Bill
  5. Gym Membership

In order to use alternative credit and effectively add it to your Arizona FHA mortgage application, your Phoenix Arizona FHA mortgage lender must receive a letter from the alternative credit company/creditor that contains all of the following specific information:

  1. Letter must be on Company’s letterhead
  2. Letter must show borrowers full name
  3. Letter must show borrowers full account number
  4. Letter must state that borrower has not had any 30 day  (or greater) late payments over the past 12 months (at least 12 months must be covered – more than 12 is acceptable)

The most commonly missed item is #4.  The Company must state this part as it is stated above.  Check out this video to learn more about Alternative credit for Phoenix Arizona Mortgage approval.

Please let me know if you have any questions about how alternative credit will help you attain full loan approval.

Apply for an FHA Home Loan today

By Jeremy House

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