Earlier this week, the Federal Housing Finance Agency (FHFA) announced that positive rental payment history will now be taken into account by Fannie Mae when underwriting mortgage loans. This was not previously a financial factor reviewed in the underwriting process, but these new rules should be beneficial to home buyers—especially first-time buyers coming from a rental situation.
The change is effective immediately and will be automatically implemented moving forward. The goal is to help more renters become homeowners. Buying a home is the American dream and more homeowners is better for the economy as a whole.
The Benefits of Rental Payment History Reviews
Previously, rental payment history wasn’t factored in when reviewing a borrower’s financial viability for a mortgage loan. Of course, late payments and overdue debts may have affected someone’s FICO score or debt-to-income (DTI) ratio, but it is a less direct measurement.
It makes a lot of sense to review positive rental payment history for homeowners. In most cases, rent is the person’s largest monthly expense. Showing an ability to pay rent on time each month should be a positive indicator that you will be able to pay your mortgage payments on time.
“For many households, rent is the single largest monthly expense,” says Sandra Thompson, acting director of the FHFA. “There is absolutely no reason timely payment of monthly housing expenses shouldn’t be included in underwriting calculations. With this update, Fannie Mae is taking another step toward understanding how rental payments can more broadly be included in a credit assessment, providing an additional opportunity for renters to achieve the dream of sustainable homeownership.”
Helping More People Buy Homes
This new policy is an extension of Thompson and the FHFA’s drive to expand housing credit to low-income and minority communities. At the same time, it benefits all potential first-time home buyers with a solid rental history. In a recent study, Fannie Mae found that 17% of mortgage applications who were denied during the old underwriting system would have been approved if their rental history had been considered.
Fewer than 5% of renters have rent payments reflected in their credit reports. Including rental history will definitely benefit those who may not have established much of a credit history. This is commonly the case in many minority and low-income communities. It is one more key financial indicator of a borrower’s ability to afford a home loan.
Let Your Rental History Enhance Your Homeownership Future
Only time will tell how much of a difference this new policy will make. Make sure you pay your rent on time and in full. Someday it could be the difference between you qualifying for a mortgage loan or not.
If you are looking to buy your first home in the San Diego area and have a strong rental history, now might be the time to make your move. Contact Transparent Mortgage today at (619) 431-0754 or email me personally at email@example.com to get started on your mortgage pre-approval.