Your Rental History Can Finally Help You Get a Fannie Mae Mortgage
Fannie Mae will include rental history in its underwriting process, making it easier for borrowers to qualify for a mortgage – starting September 18. With the rule change, 17% of previously refused borrowers will now be approved based on their lease history alone. Here’s how you can qualify.
Why is your rental history important?
Your credit rating is an important factor in your eligibility for a home loan, and this rating is based on your credit history, as reported by Equifax, TransUnion and Experian. Using these reports, lenders want to see a long history of consistent payments on service contracts and installment loans, as they show that you are likely a responsible borrower.
However, while rent is usually the largest item in a landlord’s monthly budget, landlords only report payments to the big three credit bureaus about 5% of the time . This is a terrible shame, as a recent study by Experian found that approximately 75% of participants whose rental payments were included in the report improved their credit scores by 11-29 points.
This potential boost to your credit score is why there are services that exist solely to report your rental payments to these bureaus such as Plastiq and RentMoola . However, these third-party services typically reduce the cost of each payment by 2-3%, which is quite a lot for payments of thousands of dollars a year.
How Fannie Mae’s New Rules Help You Get A Mortgage
However, from 18 September, Fannie Mae’s underwriting system will automatically determine lease payments from the applicant’s bank account. And while Fannie Mae does not process loans on its own, their system essentially pre-approves the applicant from a private lender. The company said the good news for borrowers is that there will be no penalty for missed payments as part of the valuation.
In terms of impact, according to Fannie Mae’s own analysis, 17% of borrowers who have not previously received mortgages will now qualify.
What should I do next if I want to apply for a mortgage?
If you are looking to buy a new home now, consider waiting for your mortgage application after the changes take effect in September. If your mortgage application was previously rejected, it may very well be approved this time, as your rent payments are significant expenses that can show lenders that you are in fact a reliable borrower.