When You Need Nontraditional Credit Documentation
You'll need to establish a nontraditional credit history if you don't have a credit score or lack sufficient traditional credit accounts to meet Fannie Mae requirements. This happens more often than you might think.
Say you're a recent immigrant who paid cash for everything in your home country, or you're young and have avoided credit cards and loans. Maybe you went through a period where you paid off all your debts and closed your accounts. In these cases, your lender will need to document your payment history using nontraditional sources.
The lender has three ways to gather this information: getting it directly from your creditors, having you provide the documentation yourself, or ordering a nontraditional credit report from a specialized agency.
Housing Payment History Requirements
Your housing payment history is the cornerstone of nontraditional credit documentation. The lender must verify that you've made housing payments on time for the past 12 consecutive months.
If you rent, this means providing canceled checks, bank statements showing rent payments, money orders, or getting direct verification from your landlord. The documentation must clearly show who you paid, how much you paid, and that payments were consistent.
Here's an important point: if you're buying with someone else and you both live in the same rental property, that single housing reference counts for both of you, even if only one person has been writing the rent checks.
If you own your current home, the lender can use your mortgage payment history. If you live with family and don't pay rent, you'll need to document this arrangement and may need additional nontraditional references to compensate.
What Creditors Must Provide
When your lender contacts creditors directly, they need specific information that goes beyond "pays as agreed." Each reference must include:
- The creditor's name and contact person
- When you opened the account
- Your highest credit limit or loan amount
- Current account status and balance
- Required payment amount
- Payment history in "0 X 30, 0 X 60, 0 X 90" format
That payment history format shows how many times you were 30, 60, or 90 days late. For example, "0 X 30, 1 X 60, 0 X 90" means you were never 30 days late, once 60 days late, and never 90 days late.
Vague statements like "current" or "satisfactory" don't meet Fannie Mae standards. The lender needs concrete payment history data.
Documentation You Can Provide Yourself
If you're gathering the documentation yourself, you need to show both the payment terms and proof of payment. This means providing the original contract or agreement plus canceled checks, receipts marked "paid," or bank statements showing the payments.
Your bank statements must clearly show the payee information and demonstrate consistent payments over 12 months. If you pay your car insurance monthly, for example, your bank statement needs to show "ABC Insurance Company" as the payee, not just a check number or generic description.
You can also use savings account statements or payroll deduction records, as long as they show regular deposits over 12 months with contributions at least quarterly. However, if your bank statements show overdraft activity, this raises red flags about your ability to manage finances.
Acceptable Types of Nontraditional Credit
Fannie Mae accepts various payment histories as nontraditional credit references. Common examples include utility payments, insurance premiums, cell phone bills, childcare payments, and medical payment plans.
You can also use savings patterns like regular deposits to a savings account, contributions to a stock purchase plan, or wire remittances you send to family overseas. The key is showing consistent, voluntary payments over time.
For borrowers with disabilities, a court-appointed guardian, Social Security representative payee, or parent can provide documentation if they manage the borrower's finances and maintain joint accounts.
Payment History Standards You Must Meet
Fannie Mae has strict standards for what constitutes acceptable payment history. Your housing payments cannot show any late payments in the past 12 months. This is non-negotiable.
For other accounts, only one can show a 30-day late payment in the past 12 months. You cannot have any 60-day or 90-day late payments on any nontraditional credit reference.
You also cannot have any collections (except medical collections) or judgments filed against you in the past 24 months. Any existing judgments, liens, collections, or charge-offs must be resolved according to Fannie Mae's debt payoff requirements in B3-6-07: Debts Paid Off At or Prior to Closing for manual underwriting or B3-5.3-09: DU Credit Report Analysis for DU loans.
Special Situations and Complications
Foreign borrowers face unique challenges. If you're a non-U.S. citizen without sufficient U.S. credit references, your lender must use credit references from your home country to establish the required number of nontraditional references.
This can get complicated because foreign creditors may not understand U.S. documentation requirements or may not maintain records in the format Fannie Mae expects. Start this process early and be prepared to work with your lender to translate or explain foreign credit documents.
Wire remittance statements present another complexity. If you regularly send money to family overseas, these can count as nontraditional credit references, but they must show consistent amounts over 12 months. Irregular or varying amounts may not qualify.
If you're using bank account statements to show savings patterns, any overdraft activity will be scrutinized. Multiple overdrafts suggest financial management problems and could derail your loan approval even if you meet the technical requirements.
Why These Rules Exist
Fannie Mae requires this detailed documentation because nontraditional credit borrowers represent higher risk. Without traditional credit scores and payment histories, lenders need alternative ways to assess your likelihood of repaying the mortgage.
The 12-month housing payment requirement exists because housing is typically your largest monthly expense. If you can't manage housing payments consistently, you're unlikely to handle a mortgage payment reliably.
The strict late payment standards reflect the reality that borrowers without traditional credit often have fewer financial resources and less experience managing debt. Even small payment problems can signal bigger issues ahead.
Getting Started With Documentation
Begin gathering your nontraditional credit documentation as soon as you decide to apply for a mortgage. Contact your landlord, utility companies, insurance providers, and other creditors to request payment histories.
Organize your bank statements chronologically and highlight payments to potential credit references. Make sure the payee information is clearly visible and payments are consistent.
If you discover late payments or other issues in your payment history, address them immediately. You may need to wait until you meet Fannie Mae's standards before applying, or you might need to find additional references to compensate for problem accounts.
References
For the official guidelines, see B3-5.4-03: Documentation and Assessment of a Nontraditional Credit History in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B3-5.4-03, Documentation and Assessment of a Nontraditional Credit History (02/07/2024)
Housing Payment History
Standards for Individual Credit References Obtained Directly from a Creditor
Standards for Documenting a Nontraditional Payment History Obtained From the Borrower
Verification of Bank Accounts and Wire Remittance Statements
Non-U.S. Citizen and Foreign Borrowers
Assessment of the Payment History for Nontraditional Credit References
General Documentation Requirements
The lender can document the borrower’s nontraditional credit history directly from the borrower or the creditor, or by obtaining a nontraditional mortgage credit report from a consumer reporting agency.
Housing Payment History
The borrower’s housing payment history must be documented for the most recent consecutive 12-month period. The following documentation is acceptable:
Canceled checks can be provided. In lieu of canceled checks, the lender may use the borrower’s bank statements, copies of money orders, or other reasonable methods for documenting timely housing payments. The documentation must clearly indicate the payee and amount being paid, and reflect that payments were made on a consistent basis.
Direct verification of the payment of rent from the landlord. Direct landlord verification is acceptable whether the landlord is an individual or a professional management company.
If at least one borrower on the loan can document a housing payment as a nontraditional credit reference, the loan has met the housing payment history requirement. The lender is not required to obtain documentation of a housing payment history for other nontraditional credit borrowers on the loan. However, the lender must still document the minimum number of nontraditional credit references required for each nontraditional credit borrower.
If two or more borrowers on a loan share the housing-related reference (for example, they are both named on the lease for the property in which they are living), that documentation counts as one nontraditional credit reference for each borrower, even if only one borrower has been making the payments.
Note: If the credit report contains a housing payment reference and it includes the required information, including payment history, then the lender may use that housing payment reference as an acceptable nontraditional credit reference.
For examples of acceptable housing payments to fulfill this housing payment history requirement, see B3-5.4-02, Number and Types of Nontraditional Credit References.
Standards for Individual Credit References Obtained Directly from a Creditor
Individual credit references (other than housing payments) from a creditor must include the following:
the creditor’s name,
the name of the individual providing the reference,
the date the account was opened,
the amount of highest credit,
the current status of the account,
the required payment amount,
the unpaid balance, and
the payment history.
The historical status of each account must be stated in a “number of times past due” format using “0 X 30, 0 X 60, 0 X 90” days late.
Note: Vague statements such as “current,” “satisfactory,” or “pays as agreed” are not acceptable by themselves.
Standards for Documenting a Nontraditional Payment History Obtained From the Borrower
For documentation obtained directly from the borrower, the following standards must be met:
documentation that describes the terms of the debt repayment or contract together with canceled checks or copies of bills marked “paid” that reflect the borrower’s payment history over the most recent consecutive 12 months.
withdrawals or debits on the borrower’s bank statements that show the payee information clearly listed for the creditor and that payments were made on a consistent basis over the most recent consecutive 12 months.
Verification of Bank Accounts and Wire Remittance Statements
Account statements can be used to document a nontraditional credit history, provided they are from the borrower’s checking account, savings account, voluntary payments made to a payroll savings plan, or contributions to a stock purchase plan. The account statements must reflect an increasing balance as a result of periodic deposits over at least the most recent consecutive 12-month period, with contributions being made no less than quarterly. If the account statements demonstrate overdraft activity, that information suggests a weakness in the borrower’s ability to meet financial obligations. The lender must assess the significance of this information relative to the borrower’s overall credit risk.
Note: If the loan is underwritten by DU and a cash flow assessment is conducted using a third-party asset verification report, different requirements may apply (see
Wire remittance statements can be used to document a nontraditional credit history, provided they demonstrate a consistent amount of funds being remitted over the most recent consecutive 12-month period.
Borrowers with Disabilities
If a borrower with disabilities does not have a credit score and a nontraditional credit history is being developed, the lender may use documentation provided by a court-appointed guardian, a Social Security Administration representative payee, or a parent, provided that this party:
manages the borrower’s financial transactions,
maintains records on the borrower’s behalf, and
uses credit accounts held jointly in the name of the person with disabilities to pay financial obligations.
The lender can use the documentation provided either to request a nontraditional mortgage credit report from a consumer reporting agency, or to establish a nontraditional credit history for the borrower, as described in this topic.
Non-U.S. Citizen and Foreign Borrowers
If a non-U.S. citizen or foreign borrower lacks sufficient credit references in the United States to satisfy Fannie Mae requirements, the lender must use credit references from foreign countries to achieve the required number of nontraditional credit references and establish a nontraditional credit profile.
Assessment of the Payment History for Nontraditional Credit References
For each nontraditional credit reference, the following requirements must be met:
There cannot be any delinquency on housing payments within the past 12 months.
Only one account, excluding housing payments, can have a 30-day delinquency in the past 12 months.
No collections (other than medical collections) or judgments have been filed in the past 24 months.
Judgments, liens, collections, and charge-offs of non-mortgage accounts must be satisfied in accordance with
B3-6-07, Debts Paid Off At or Prior to Closing(for manually underwritten loans), orB3-5.3-09, DU Credit Report Analysis(for loans underwritten with DU).
Note: A borrower may lack sufficient credit to obtain a credit score. However, the lender must still consider any derogatory credit references that appear on the credit report.
