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Help For Homebuyers with Thin Credit

Good news for people who want to buy a home but don’t have much credit to show!

“Thin credit” means there is not enough data on the credit report to make a determination of being credit-worthy. This is especially tough when you’re trying to qualify for a mortgage to buy a home, because getting a mortgage has more requirements than getting a credit card or auto loan.

As a mortgage broker for over 23 years, my definition of thin credit is having less than three accounts that are either open or were active in the last five years. Example: one credit card open and one car loan paid off six years ago is a thin file.

Experian’s definition is stricter than mine: less than five accounts on the credit report. I like my definition better, because I have successfully closed loans for many people with three accounts on their credit report. (Also two accounts, but I had to go with FHA rather than conventional.) Nevertheless, Experian prefers five accounts for their credit scoring purposes.

Back to the good news!

Your rent payments can be included on your loan application to beef up your credit profile. Here’s how it works:

You give your loan officer proof of payment for the most recent 12 months’ rent, paid on time. Your loan officer manually adds that into your loan application and uploads it to Freddie Mac’s conventional loan.

The mortgage lenders can choose either Fannie Mae or Freddie Mac as a source of money. Your loan officer needs to choose Freddie Mac, also known as LP (Loan Prospector software system). This is for a conventional loan, which is the best and cheapest financing.

It is important to pay your rent on time and to keep a consistent record of doing so. Don’t split your monthly rent into two payments. Don’t pay by Zelle one month and by check another month. Pay the same way every month, on time, and keep a record. That will make it easier for you to get credit for paying rent.

Thank you, Freddie Mac, for taking this step to help more good people become home owners!

Please pass on this information to your loan officer and to your realtor.

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