Until the recent past, your regular payments did not play any role in your ability to qualify for a home mortgage. Fortunately, that has changed owing to a recent announcement by the Federal Housing Finance Agency (FHFA). Now, Fannie Mae will require that lenders consider borrowers’ rent payment histories during the underwriting process.

What Has Changed?

Fannie Mae implemented an update to Desktop Underwriter (DU) – an automated underwriting system that helps mortgage providers make informed lending decisions on government and conventional loans – during the third weekend of September 2021.  All the changes are meant to apply to case files that are submitted or resubmitted after this update.

An important change owing to this update is that positive rent payment history has been added to DU’s risk assessment.

How Will It Work?

If your existing monthly rent is $300 or more, and if a mortgage provider obtains a 12-month Verification of Asset (VOA) report, DU will aim to highlight regular rent payments within the report so they may be used in your risk assessment.  The new risk assessment system will apply to your case file if you meet these criteria:

  • You’re a first-time homebuyer
  • You have been living on rent for 12 months or more
  • You pay at least $300 as rent each month
  • You will use proceeds from the home loan toward a purchase transaction
  • You will use the property you purchase as your principal residence
  • You have a credit score
  • Your lender obtains a VOA report that includes bank statement data of 12 months through an authorized DU validation service verification report vendor.

In case DU identifies a rent payment pattern in your bank account data, it will use the information to aid in your credit risk assessment.  To make sure that DU identifies your rent payments, your mortgage provider needs to:

  • Mention your monthly rent in the DU loan application
  • Get a 12-month VOA report and use the relevant Reference ID in the DU loan application
  • Ensure that the bank account from which you pay rent is in your name and that it finds a mention in the VOA report

Why This Change?

According to Fannie Mae, it has implemented this change in credit risk assessment with the aim of improving borrowers’ homeownership odds. Until now, limited credit history has worked as a barrier for many probable homeowners even if they’ve maintained an excellent rent payment history. While rent reporting through different reporting programs can help improve credit scores, not many landlords report rent payments to credit bureaus. Consequently, renters see no positive effect of their regular rent payments on their credit scores. With the new change, this should no longer be a problem as DU will attempt to detect rent payment histories through applicants’ bank accounts.