Financing for Homes and Small Businesses

NO Credit Score with Automated Underwriting

No credit score!

DU Version 10.0 will include the ability to underwrite mortgage loan requests in which no borrowers have a credit score.

no credit score

Besides incorporating Trended Credit Data into the new automated underwriting engine, this version of DU has the ability to approve borrowers who lack any FICO credit score.

Lack of Traditional Credit

Having no FICO credit score is also known as lacking established traditional credit.

Who might not have a credit score?  A borrower just out of college who has landed a great, new job.  A borrower who for one reason or another deals exclusively in cash when settling their obligations.  Another individual to consider is the person who has been living outside the country and has recently relocated in the U.S.A.  The ‘foreign national’ is the type of borrower that comes to mind.

Automates the Process while Allowing for Manual Underwrites

This new Desktop Underwriter 10.0 has the ability to automate what was once a manual effort by lenders.  A triple merged credit report will still be required.  All the existing data on the report must accurately reflect any of the borrower’s information.  Lenders must confirm that the lack of traditional credit was not erroneously reported because incorrect information was used to order the credit report.

No Credit Score Borrowers Create New Stipulations

With any new accommodation there are typically some additional guidelines.  The following restrictions will apply to borrowers without traditional credit:

  • Principal residence transactions where all borrowers will occupy the property
  • One-unit property (may not be a manufactured home)
  • Purchase or limited cash-out refinance transaction
  • Fixed-rate mortgage
  • Loan amount must meet the general loan limits (may not be a high-balance mortgage loan)
  • LTV, CLTV, and HCLTV ratios may be no more than 90%
  • Debt-to-income ratio must be less than 40%
The decision brain of the new DU automated underwriting system will be looking at these 3 factors more closely if the borrower lacks a credit score:
  • Borrower’s equity and LTV ratio
  • Liquid reserves
  • Debt-to-income ratio

In addition, DU 10.0 will require documentation of at least “two non-traditional credit sources for each borrower that does not have traditional credit, one of which must be housing-related.”  The housing related may be a history of rental or mortgage payments.  These sources must cover a twelve month payment history.

Lastly, there’s a bit of a twist.  If only one of the borrowers is without a FICO credit score but the other has a middle score, then self employment income MAY now be used.  This new version removes that constraint.

Need more information?  Know someone who could benefit from this new method?  Give us a call today!

 

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