If you are paying rent and wanting to buy a home soon or even thinking about it, we have some excellent news for you! Fannie Mae, a federally-backed home loan investor, released their latest tool. The automated underwriting system will allow consumers’ rent payments to be included in the mortgage credit evaluation process. This was announced earlier in September, so we’ll cover everything you need to know.
What Is It?
As of September 18th, a single-family lender can have their recurring rent payments be included in the applicant’s bank statement data to help give a more accurate credit assessment. And even better news, missed or inconsistent rent payments will not negatively affect the applicant’s ability to qualify for a Fannie Mae loan. So this new tool can only help renters, not hurt! Rent payments can be identified by check or electronically by a company’s payment portal or other digital payment solution.
How Does Paying Rent Help Qualify for a Mortgage?
After applying for a mortgage, the lender will run it through Fannie Mae’s underwriting software. The software will determine whether Fannie Mae would buy the loan. Renters will get another shot if the answer is no due to a low credit score or credit history. Lenders will ask permission to search your bank statements for your in-time rental payments. The system can identify rent payments made through checks or electronic payments; such as a payment portal or a digital payment platform like Venmo.
Why Does It Matter?
This is great news for renters because it’s a new opportunity to help you on your path to homeownership. This is especially true for renters with limited credit history but a strong rent payment history, like young professionals and adults. According to the Chief Executive Officer of Fannie Mae, this new underwriting will help create “a more inclusive mortgage credit evaluation process.”
According to Fannie Mae’s press release, mortgage applicants who had not owned a home in the past three years and were rejected due to the old Desktop Underwriter, 17% could have received an approval if their rental payment history was considered. This is huge! Especially when you factor in that almost 20% of the U.S. population has little credit history established.
If you’re ready to go from renter to homeowner, contact Prism Realty today! We’re here to offer our expertise and help you achieve your real estate goals.