We are getting closer to the launch of the positive Rent Payment History being usable with Fannie Mae! This big change will be positive for folks who might not have super high scores. We find verification of rental important, especially for those who don’t have a long HISTORY of Credit. Fannie Mae will begin Considering your Rental History in their Automated Underwriting Services beginning next week. Does that mean a Verification of Rent will be required when getting a mortgage? Maybe.
One component of your Credit Score is Length of Credit. Meaning the age of the accounts that appear in your credit reports. Credit scoring models use various credit age-related metrics when calculating your score, including:
- The average age of your accounts
- The age of your oldest account
- How long it’s been since you opened an account
We see this becoming a bigger issue as Gen Z, and those slightly older begin looking for homes. Another group of folks who are likely impacted by this are those who are new to our Country, as immigrants who are in their 40s or 50s don’t typically have US credit accounts. As a general rule of thumb, a longer credit history is better for your credit scores. Additionally, the length of your credit history can impact the relative importance of other scoring factors—as scoring factors can be interdependent.
Verification of Rent has not previously been used as a credit scoring factor, but as Fannie Mae allows for this consideration, they open the door for this to be an important factor in boosting scores in the future.
When Is Verification of Rent Required When Getting A Mortgage
Because Housing Expenses are usually the largest payments Households make, Fannie Mae estimates that 17% of applicants over the past three years would have benefited from this change. It’s interesting that Lenders are not required to pull a Verification of Rent for all borrowers.
In fact, Fannie Mae is not requiring a Verification of Rent at all! Because everything is electronic, they are going to see the amount of your rent coming out of your bank statement for the last 12 months. There are various electronic services that can pull this information, and our company will be using AccountChek. Once we have a disclosure allowing us to pull the report, your rental history will become part of your credit findings within the Automated Underwriting System.
What Happens If You Don’t Pay Your Landlord From One Bank Account?
The Devil’s in the details… a written Verification of Rent would be easier for those who maybe use 2 bank accounts to pay for their rent. It would be easier to use a Verification of Rent form if you paid rent with a Money Order. There are any number of reasons we would be able to see on time Rental Payments via a Verification of Rent that will not show up on Bank Statements… But that’s not how this program works.
Allowing us to use add the Electronic Verification of Rent, via the Bank Account is the only way the Fannie Mae system is allowed to consider the positive impact of Rental Payments. Because of that, we strongly suggest that if you are considering purchasing a home in the next year, you begin paying your rent from one Bank Account. If you are sharing this responibility with a room mate (for instance), consider opening a “household” account to pay the rent from. In a perfect world, this will improve your chances of purchasing a home – and it might help with a budget.
Given that rent is so expensive now – buying a home that you can “personalize” and renovate on your own terms makes sense. You can definitely add value to an older home, even if all you do is take down the popcorn ceiling!
If you are considering buying your first home in Raleigh, and you want to talk about your particular circumstances when it comes to Buying A Home Versus Renting A Home let us know!
Remember – we have special NC First Time Home Buyer Programs | NCHFA DPA Programs that can help you do this! If your credit history isn’t at least 10 years long, then we can help figure out when a Verification of Rent is required whn you are getting a Mortgage. Call Steve and Eleanor Thorne, NC Mortgage Experts – Or leave us a comment below, we try to answer all questions 🙂 919-649-5058. Connect with us on Google Plus and Facebook
I try and answer all questions :)