For roughly two years now, FHA loans have required borrowers to show at least three trade lines in their credit history in order to qualify for an FHA loan. Some lenders allow exceptions if a borrower has one major trade line (such as a mortgage, car loan, or boat loan), but for the most part, it is three or no loan. For all the details, check out this post from late 2009 on my retired blog site.
Fast forward to May 2011, and it seems conventional loans are catching up. Well, at least conventional loans that require Private Mortgage Insurance (commonly referred to as PMI).
In early May, some of the PMI companies began requiring three trade lines for borrowers to be approved on loans that require PMI. A few weeks later, and they all now require three trade lines. These trade lines can be a mortgage, credit card, car loan, etc., but must be 12+ months old at the time of the loan application in order to be counted toward the minimum requirement of three trade lines.
Sound familiar? Well, it should because those are essentially the same guidelines borrowers have lived by on FHA loans for quite some time now. For the most part, it isn’t anything new, just being applied to a new area. There is a very important distinction between the trade line requirements for FHA versus the conventional PMI loans.
The PMI requirements require three trade lines that are at least 12 months old, but they can be from anytime in a borrower’s credit history. That means the accounts do NOT need to be currently open or active. At some point in time, the borrower needed to have used a credit account (car, student loan, anything along those lines) for 12+ months.
FHA loans allow for an account to be currently closed so long as it was not closed more than 24 months ago. No time limit for PMI guidelines (at least with today’s guidelines).
The recent PMI guideline change only continues to highlight why planning ahead is so essential when buying a home.
If you are looking to buy a new home OR refinance a current mortgage, it is never too early to get started. The current lending environment is volatile, and it highlights the need to work with a professional who is on top of all current and coming changes in the mortgage industry. If you find yourself in the “in need of a mortgage category,” I’d be glad to help you get started and guide you through the mortgage process!
