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Fannie Mae will include rent-payment history as part of their underwriting process, making it easier for borrowers to qualify for mortgages—starting Sept. 18. With the rule change, 17% of borrowers who were previously rejected would now be approved, based on their rental history alone. Here’s a look at how you might qualify.
Why your rental history matters
Your credit score is a big factor in whether you qualify for a home loan, and that score is based on your credit history, as reported by Equifax, TransUnion, and Experian. Using these reports, lenders like to see a long history of consistent payments for service contracts and installment loans, as it shows that you’re probably a responsible borrower.
However, despite the fact that rent is typically the biggest expense in a renter’s monthly budget, landlords only report payments to the big three credit bureaus about 5% of the time. This is a dang shame, as a recent Experian study found that roughly 75% of the participants who had their rental payments included as part of their report saw their credit scores improve between 11 and 29 points.
This potential boost to your credit score is why there are services that exist solely to report your rent payments to these bureaus, like Plastiq and RentMoola. However, these third-party services typically take a 2-3% cut on each payment, which is a lot for payments worth thousands of dollars each year.
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How Fannie Mae’s new rules will help you qualify for a mortgage
As of Sept. 18, though, Fannie Mae’s underwriting system will automatically identify rent payments from an applicant’s bank account information. And while Fannie Mae doesn’t handle loans themselves, their system essentially pre-approves an applicant to private lenders. The good news for borrowers is that missed payments will not be penalized as part of the evaluation, according to the company.
In terms of impact, 17% of borrowers that previously missed out on mortgages would now qualify, according to Fannie Mae’s own analysis.
What are my next steps if I want to apply for a mortgage?
If you’re in the market for a new home now, consider waiting to apply for a mortgage after the changes go into effect in September. If your application for a mortgage was previously rejected, it could very well be approved this time, as your rental payments are a significant expense that can show lenders that you are, in fact, a reliable borrower.
