Qualifying for a Home With Positive Rental Payment History
In a recent turn of events, Fannie Mae has decided to add a new feature to its underwriting system to help qualify more renters for homeownership. With the borrower’s permission, Fannie Mae will use this new feature to analyze twelve months of a borrower’s past positive rental payment history. This is part of a new effort to make home buying more affordable for renters in lower income and credit households.
Since rental payments are a family’s largest expense, it makes sense that if you pay rent on time, that you should be able to qualify for a mortgage. Thankfully, only positive rental payment history will be taken into account when qualifying for a home. So you won’t have to worry about late payments or other negative rental payment history affecting your eligibility.
Stepping in to Help Renters
Already, several steps have been taken to help renters qualify for homeownership, such as the new QM rule. There’s also a new way in which student loan debt is being calculated when qualifying someone to buy a home (however, this only applies to FHA loans). All of these rule updates are changing the home buying game. Using rental payment history as a credit boost is just one of many of Fannie Mae’s decisions in the past year that has shown the GSE’s commitment to affordable housing.
According to Fannie Mae, 17% of mortgage applicants sampled in the past three years who weren’t approved for a mortgage, would have been if their positive rental payment history had been taken into consideration. The idea is to work with the financial reality that the US has faced in the past year despite huge gains in employment and wages. We need to be understanding of wealth gaps, especially in communities of color and people who have struggled financially due to the effects of the pandemic on local businesses and national employment.
Helping Home Buyers With Limited Credit
So why is taking someone’s positive rental payment history into account important? Because approximately 20% of the US is credit invisible. And then there’s another 30% that have subprime credit scores. So all in all, you’ve got a lot of people with either so-so credit, or little to no credit history living in the United States, and when it comes to buying a home—that’s a problem.
Using positive rental payment history would give millions of home buyers the opportunity to own homes for the first time. We also need to keep in mind that credit is more flexible than people think, and I’m glad to see that Fannie Mae is headed in the right direction.