When applying for a home loan, your credit score is often one of the first things underwriters will consider before approving or denying financing. A mediocre credit score is often synonymous with rejection, although some mortgage lenders will consider a credit score as low as 580 for some government-backed loans. But, what about borrowers who do not have a credit score? Fannie Mae may provide the solution.
Starting in mid-December, Fannie Mae will be rolling out a new wave of enhancements in its industry-leading automated underwriting system, Desktop Underwriter, updating its eligibility criteria for loans where the borrower does not have a credit score to align with its lending requirements. The new enhancements will consider a borrower’s monthly cash flow over the past 12 months to determine their eligibility and automate the documentation of nontraditional sources of credit, such as phone bills, utility bills, rental verifications, etc.
“We believe consumers should benefit from their responsible money management habits and a steady stream of income when buying a home, even if they don’t have an established credit history,” said Malloy Evans, Executive Vice President, and Head of Single-Family Business at Fannie Mae. “Traditional lending practices make it hard for borrowers with no credit score to access credit, so we’ve taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”
New Paths to Homeownership
This latest development is part of Fannie Mae’s efforts to make homeownership “easier, fairer, and more accessible.” According to data from the Consumer Financial Protection Bureau (CFPB), the lack of credit score disproportionally affects minorities, with close to 15% of Black and Latino/Hispanic people being creditless compared to 9% of their White and Asian counterparts.
In July, Fannie Mae added on-time rent payment history into their automated underwriting system, making homeownership more easily accessible for first-time homebuyers. Then, in October, they added an option to include 12 or more months of cash flow activity, using data obtained from checking, savings, and investment accounts. This allows self-employed borrowers to justify a sustainable income without a W-2.
We’ll keep you posted on additional updates by Fannie Mae. In the meantime, please contact us if you’d like more information about buying/selling or refinancing in today’s market.
