Building Credit With Timely Housing Payments

This article is about building credit with timely housing payments. One of consumers’ strongest credit tradelines is building credit with on-time housing payments. Most landlords do not report rental payments to the credit bureaus. However, there is a way of reporting timely monthly payments to all three credit reporting agencies on time.

Mortgage underwriters view timely rental payments and low payment shock as a strong compensating factor when underwriting borrowers.

Payment shock is the difference between a homeowner’s new mortgage payment and their prior monthly payment. If the payment shock is less than 5%, it is considered a strong compensating factor and viewed favorably by the mortgage underwriter.

Building Credit With Timely Housing Payments: The Importance of Making Timely Payments

It is no secret that paying your bills on time will increase your credit score. But what if you are currently renting and do not have a mortgage? Can you still get credit score improvements for making on-time housing payments? The answer is yes. This blog will detail how to increase your credit score by reporting your on-time housing payments.

We will also briefly discuss changes by Fannie Mae and Freddie Mac regarding rental payments. Gustan Cho Associates is an expert in all areas of mortgage lending, especially credit scoring.

Many borrowers have less-than-ideal credit, but we can still help them obtain a mortgage. We offer our mortgage loan products without additional lender overlays and do not have any extra credit score requirements.

Building Credit With Timely Housing Payments: Credit Scoring Explained

A credit score predicts how likely you are to repay a loan and make those payments on time. Your overall credit score uses many information to compute a credit score number.

For more information on mortgage lending without lender overlays, please call Mike Gracz at (800) 900-8569. Our team may also be reached at mike@gustancho.com.

Feel free to email more information on your specific credit scenario. Just so you know, our team will reach out with a detailed response. The main factors that make up a credit score are your ability to make payments on time, your current unpaid debt, the number and type of accounts reporting, the length of time you have had open accounts, how much of your available credit you are using (utilization), and whether you have delinquency such as collections, foreclosure, or bankruptcy.

Building Credit With Timely Housing Payments: Higher Credit Scores Yield Lower Rates

All this information is compiled into an easy-to-read credit score and used by lenders nationwide. Credit scores are used when buying a vehicle, financing furniture, leasing a property, and many other scenarios. The uniform credit scoring model is easy to screw up and hard to fix.

Back in the day, a bank would give you a loan based on your personal reputation, but as the population grew, this became nearly impossible to track.

Now we have standardized credit scoring models used by all major mortgage agencies. Mortgage companies are required to use the 2, 4, and 5 scoring models. Each number represents the scoring model used by each of the three major credit bureaus:

• Experian – FAIR ISAAC SCORE 2
• TransUnion – CLASSIC 04 SCORE
• Equifax – BEACON 5.0 SCORE

Building Credit With Timely Housing Payments: Get Credit For Paying Monthly Rent on Time

How do you get credit for on-time rental payments? If you have had a mortgage or currently have a mortgage, you know that your payment history is reported every single month to all three credit bureaus by most mortgage lenders. However, if you rent from a management company or a private landlord, you may not receive these credit score points.

Numerous services are available that will report your rental payments to each credit bureau monthly, giving you a housing payment history.

Many of these services are relatively cheap, approximately $10 a month, and usually have a startup fee between $50 and $100. In 2017, TransUnion conducted a study following 12,000 participants for 12 months. These 12,000 individuals reported their rental payments and received an average boost of 16 points after just six months. For borrowers who had lower credit scores, to begin with, the increases were more substantial, helping many individuals get over the 620 credit score threshold.

The Importance of Timely Housing Payments 

Please remember that this process will increase your responsibility to make timely payments. Like any other account reporting to the credit bureaus, a missed payment will negatively impact your overall credit rating.

A single 30-day late housing payment will significantly impact your overall credit score. If you have struggled to make rental payments on time, you may not want to sign up for one of these services.

If your payment history is solid, we highly recommend this process. Getting above 620 can give you access to many mortgage programs. On-time rental payments can be important when renting another property and attempting a mortgage.

Current Updates By Fannie Mae and Freddie Mac

These government-sponsored enterprises (GSEs) understand that many families’ monthly rental payment is their largest financial obligation. Not receiving credit for on-time rental payments can lower their overall mortgage qualifications.

On-time rental payments will now be factored into Fannie Mae’s underwriting calculations, and missed payments won’t necessarily prevent borrowers from obtaining a mortgage.

According to Fannie Mae, when they went back to analyze their data from their desktop underwriting system (AUS), they found that 17% of borrowers turned away for a mortgage may have been approved if their on-time rental payments were considered.

Renters Can Start Building Credit With Timely Housing Payments To Qualify For a Mortgage In The Future

Freddie Mac has also devised a solution. It has now encouraged multi-family landlords to report positive rental payments to the credit bureaus to help renters better qualify for a mortgage in the future.

Freddie Mac is highly motivated to start this process. The landlord will be required to report this data monthly and, in return, will receive a closing cost credit when buying a multi-family house.

To see a closing cost credit given by a major agency like Freddie Mac is a huge change.  VA loans are a type of mortgage the government guarantees to military members at affordable prices to promote homeownership. These loans are unique to the rest of the loan types as borrowers are not required to pay Private Mortgage Insurance (PMI), and some lenders allow the borrower to pay no down payment.

Building a Strong Credit History To Prepare To Qualify For a Mortgage With A Rental History

The American Dream is still to own your own home. Paying rent on time is one of the strongest credit tradelines you can have. Lenders view verification of rent as one of the strongest compensating factors any loan applicant can have.

It is a good sign that the major players in the mortgage industry are stepping up and understanding the importance of housing payment history.

Achieving homeownership is still the American dream, no matter what the media may tell you. Building equity in a home is a great way to build wealth and stability for your later years in life. Most generational wealth is transferred through real estate. That is why government agencies are trying to level the playing field.

Eligibility and Mortgage Options FAQs  

Find out everything you should know about VA loans, such as eligibility, key benefits, and mortgage options. This article addresses the general VA home mortgage queries that veterans and armed forces personnel ask.

Backed by the Department of Veterans Affairs (VA), the loans have flexible terms, no down payment requirements, and low interest rates.

There is no question that a VA loan is a prudent choice for refinancing or buying a home. It comes with some of the biggest benefits military veterans have, and it is also extended to their eligible spouses. It is common to have queries about these loans, which is why this guide, VA loan FAQs, and mortgage options are provided.

Some of the benefits of the VA loans include the following;  

• No down payment is required in most scenarios.
• Unlike traditional loans, the interest rates are lower.
• There is no Private Mortgage Insurance needed.
• Credit terms are lenient.
• One-time VA funding fee (with some exemptions for disabled veterans).

VA Loan Eligibility FAQs  

Who is eligible for a VA loan?  

You may qualify for a VA home loan if you are:  

• An active-duty service member with at least 90 days of continuous service.
• A veteran who meets minimum service requirements.
• A National Guard or Reserve member with sufficient service time.
• A surviving spouse of a service member who died in the line of duty or died due to a service-related disability.

Do I Need a Certificate of Eligibility (COE)?  

• Yes.
• The VA loan program requires a certificate of eligibility.
• Normally, lenders are able to electronically pull it, or you can go to the VA site and request one.

What Are the Minimum Service Requirements?  

• Wartime service: At least 90 days of active duty.
• Peacetime service: At least 181 continuous days.
• National Guard/Reserves: At least 6 years of service, unless you get called to active duty earlier.

Can Surviving Spouses Apply for VA Loans?  

• Yes.
• Surviving spouses who are otherwise eligible can benefit from VA loan programs.
• However, certain requirements must first be satisfied, such as not remarrying before age 57.

VA Loan Mortgage Options  

What types of properties can I buy with a VA loan?  

VA loans can be used to buy the following:  

• A site-built single-family home.
• A multi-family dwelling unit (4 or fewer, with owner-occupancy of one unit).
• A manufactured home (with certain restrictions).
• A condo in VA-approved buildings

Can I Use a VA Loan For Refinancing?  

Yes, refinance options include:  

• VA Interest Rate Reduction Refinance Loan (IRRRL): To lower the Interest on a loan or change a loan from an adjustable to a fixed rate mortgage.
• VA Cash-Out Refinance: Refinancing to a VA loan from a non-VA loan, or tapping into home equity.

Can I Get a VA Loan For a Second Home or Investment Property?  

VA loans are for primary residences only. However, you can buy a multi-unit home and live in one unit while renting out the others.

Do VA Loans Have Loan Limits?  

There are no loan limits, although lenders may choose to set limits based on certain factors, like your financial status or entitlement. In many situations, a veteran with full entitlement can get a loan above the conforming loan limit, with no down payment or restrictions.

FAQs on VA Loan Benefits  

Are There Any Credit Requirements for VA Loans?  

• While VA loans are less stringent than conventional ones, most lenders prefer a minimum credit score of 620.
• Our loans, however, do not require a minimum score.

What is The VA Funding Fee?  

• The VA funding fee is a singular fee that provides funds to maintain the program.
• It fluctuates based on your loan type, service category, and the down payment.
• It is waived for veterans with service-connected disabilities.

Are VA Loan Benefits Reusable?  

• Yes, someone is allowed to use their VA loan entitlement unlimited times.
• If you pay off—and sell—the property, you regain your full entitlement as well.

The unmatched VA benefit, with no down payment, competitive rates, and less stringent loan requirements, makes it the most reliable mortgage for helping people gain home ownership. Knowing the VA loan eligibility requirements and the mortgage options available makes it easier to finance your next property.

FAQs  

How, if At All, Does a VA Loan Interact With Other Financing Programs?

• A VA loan may be used with some state and local first-time homebuyer funds.

Are VA Appraisals Stringent?

• VA appraisals are done to ensure the property is safe, sound, and sanitary.
• They are detailed but not necessarily more complicated than standard appraisals.

Is There a Limit to How Many Times I Can Use My VA Loan Benefit?

• No.
• You can use the VA loan benefit multiple times if you restore the entitlement.

Can I Use a VA Loan if I Already Own a Home?

• Yes.
• You can have multiple VA loans simultaneously, but many entitlement restrictions can limit this.

Do VA Loans Take Longer to Close?

• Not usually.
• VA loans can close simultaneously with conventional loans, especially with other experienced VA-approved lenders.

Qualifying For a Mortgage With a Mortgage Company Licensed In Multiple States With No Overlays

Gustan Cho Associates are experts in analyzing credit reports. We have seen credit scores as low as 400 and as high as 850. Many of our borrowers have had minor or even major issues with their credit reports. Even if your current lender has turned you down, we encourage you to contact our team.

Since we are experts in credit, we will devise a custom financial plan to help you qualify for a mortgage as soon as possible.

Please contact our team today to review your current credit requirements. Call credit expert Mike Gracz at (800) 900-8569 or email mike@gustancho.com.