Credit Issues & Want to Refinance or Buy? As of Today, September 18, 2021, It Just Got a Little Easier.
Are there other ways to determine financial responsibility and stability beyond credit reports and income? Are there people who have strong backgrounds paying their rent on time each month but have sub-par or limited credit?
By asking these questions, Fannie Mae (shorthand for the Federal National Mortgage Association) has made it easier for renters to transition to homeownership. (And we can optimize these applications.)
[T]his [new] factor... CANNOT affect you negatively. If payments are inconsistent, it will be a nonfactor; rental payment history is only considered if it is positive.
In its new underwriting policy announced on August 11, 2021, and that took effect today, September 18, Fannie Mae stated that it is broadening mortgage access responsibly. The consistency of rent payment history is now a part of the organization’s automated underwriting technology.
How Fannie Mae Includes Rental History in Mortgage Applications
The Fannie Mae system is called the Desktop Underwriter, or DU. For rent payments to be considered, you approve that part of the evaluation via your lender during the application. The lender then can submit it to the DU, which will auto-detect rent payments coming through each month within your bank account activity.
Actually, the greatest part about this factor is it CANNOT affect you negatively. If payments are inconsistent, it will be a nonfactor; rental payment history is only considered if it is positive by this publicly traded, federally sponsored institution.
Black consumers reported... that the #1 thing keeping them from mortgage approval was credit history or credit score.
Lack of Access, Particularly Among People of Color
Since house payments are so similar to rent payments (once a month and often of similar size), it makes total sense to include this factor. However, it is very uncommon to have it posted to the credit bureaus: the payments of fewer than 1 in 20 renters appear on their credit reports.
While the most fortunate among us have robust credit histories, credit history is thin for 1 in 5 US citizens. Part of what’s concerning is the disproportionate numbers of Latinx and Black borrowers within this group. Specifically, Black consumers reported during the most recent National Housing Survey from Fannie Mae that the #1 thing keeping them from mortgage approval was credit history or credit score.
For comparison, 29 percent of Black consumers reported this mortgage hurdle, while only 18 percent of White consumers reported the same. This issue is particularly important given a May 2021 Freddie Mac study revealing that Black and Latinx borrowers had refinanced at today’s historically excellent rates in particularly small numbers.
Get your best rate
Do you think rental history could help you score a mortgage refinance or new-home mortgage? At Best Advantage Mortgage, our Minneapolis-based loan officers take the time to get to know you so we can tailor a loan to help you achieve your goals. Meet our team.