Rental History to Help Your Mortgage Application

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Real Estate

You are about to get a huge reward for paying rent

Fannie Mae will now consider rental payment history in your mortgage application process. This is a massive undertaking by the Federal National Mortgage Association. This will be a major boon for renters looking to become homeowners. Until now, paying your mortgage bill on time has reflected a direct increase to your credit score while on time rent payment did nothing. This unfortunate oversight has made it difficult for some renters to qualify for affordable mortgages, despite logic dictating this metric should be considered a direct reflection of not only the renter’s credibility but also their ability to reliably pay for their mortgage. If only it were to be used as a factor to approve new buyers when applying to be homeowners we could see significantly more first-time home ownership. Now, Fannie Mae is trying to change that.

The change you've been wanting for a long time

Fannie Mae is considered by many to be the pre-eminent mortgage finance giant in the US and it is making a change to its underwriting system so that borrowers’ rent payment history will now be a factor when looking at qualifications for a mortgage application. According to The Wall Street Journal, this change is expected to come into effect on September 18.

Beginning in October, Fannie Mae’s system will automatically be able to identify rent payments utilizing borrowers’ bank account information. Of course, the borrower will need to give Fannie Mae permission to access this information just as you would give access for your credit score to be run when applying for a mortgage. Twelve months of consistent payments could prove beneficial to applicants, but it does not mean they automatically get mortgage approval. Additional factors such as borrower’s income, credit history and credit score will be taken into consideration before an approval can be granted.

Fannie Mae isn’t the actual loan provider, but rather the larger of the entities that would purchase the loans from banks that are awarded to the buyers. Their system, now to be supplemented by rental history, informs the banks which loans they would accept and which they would reject. The banks then bundle the loans up into securities packages for sale to Fannie Mae.

First-time home buyers would have benefited greatly in recent years from this change had it been implemented. It is estimated about 17 percent of rejected loan applicants since 2018 would have been approved had rental payment history been considered. In 2019 alone, that would amount to nearly 350,000 more approved single-family mortgages. Unfortunately, the rent payment data still wouldn’t help applicants who pay rent in cash. So if you have been hesitant to get your automatic rent payments established, this revelation might just be the thing to motivate you into action!

For more on this update see Fannie Mae