When Is Rental Verification Required By Mortgage Lenders

One of the frequently asked mortgage questions we get from home buyers is when is rental verification required by mortgage underwriters. Rental verification is an extremely strong credit tradeline that will add strength to the mortgage loan borrower’s credit profile. There are times when the Automated Underwriting System (AUS) will require borrowers to provide verification of rent. This normally happens with lower-credit-score borrowers or those with many outstanding collections, charged-off accounts, or prior bad credit. In the following paragraphs, we will cover when is rental verification required by mortgage underwriters.

When Is Rental Verification Required? Manual Underwriting

FHA and VA loans are the only two mortgage loan program that allow manual underwriting. There are instances where a mortgage underwriter can downgrade an automated underwriting system approved file to a manual underwrite due to high debt-to-income ratio, low credit scores, or large outstanding collections or charge-off accounts. All manual underwriting files require verification of rent. However, for homebuyers who do not have rental verification due to living with a family rent-free to save money, the verification of rent is waived at Gustan Cho Associates. Gustan Cho Associates will waive rental verification for homebuyers living rent-free if they can complete and sign the living rental-free form provided by the landlord.

Renters renting an apartment or home will be asked by lenders how they are paying their monthly rental payments. The rental verification cannot be used for renters paying monthly rent with cash. Even though they are armed with paid cash receipts by landlords, the VOR is invalid. Cash in the mortgage world is non-existent. Renters who rent from a private landlord pay cash and get a paid receipt every month that still cannot be used as proof of rental verification. Only canceled checks or bank statements are valid in providing VOR.

When Is Rental Verification Required Can Be Waived On Manual Underwriting

Many first-time homebuyers normally live with family or rent an apartment or home. For those first-time homebuyers, proof of renting and showing the mortgage lender that they are paying their monthly rent on time is extremely important. The mortgage loan underwriter will require at least 12 months of timely rental payments to the landlord. Lenders do not accept cash-paid receipts by landlords as a valid verification of rent. Only 12 months of canceled checks paid to the landlord or 12 months of bank statements are valid as rental verification.

Paying Cash For Rent To Property Management Company

Renters renting from a registered property management company are exempt from providing 12 months of canceled checks or bank statements to validate the verification of rent. Those living in an apartment complex and paying cash for their rent do not have to provide 12 months of canceled checks or 12 months of bank statements. A VOR form provided by the mortgage lender needs to be completed and signed by the manager of the property management company. The signed VOR Form can be used as a valid verification of rent for borrowers.

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Canceled Checks To Prove VOR

Renters renting an apartment or home from a private landlord can only show proof of rental verification by providing the mortgage lender with 12 months of canceled checks. Paying part with a check and part with cash is invalid and cannot be used as a VOR. This does not constitute a VOR in the mortgage lender’s eyes. First-time homebuyers are planning on purchasing a home soon and have been paying the landlord with cash. They need to start paying monthly rent payments with checks, effective immediately.

When Is Rental Verification Required: Exception Where Cash Monthly Rental Payments Will Count Towards Rental Verification

As mentioned earlier, renters rent an apartment or home from a registered property management company and pay them with cash every month, then a completed VOR form from the property management manager towards rental verification. Registered property management companies are exempt from the check-only rental verification rule. It needs to be a professional property management company, and a letter stating that you have been timely on monthly rental payments for the past 12 months will be sufficient proof to be used as rental verification.

How Is Verification Of Rent Valid For Mortgage Lenders

Rental verification is only valid if the renter has been paying rent in a timely manner for the past 12 months. If the renter has been late multiple times, do not turn in the VOR. Mortgage lenders do not always require Verification of rent. Only borrowers with lower credit scores, not enough credit tradelines, gift funds, prior bad credit, late payments in the past 12 months, or substantial collections or charged-off accounts will most likely require rental verification.

Why Is Rental Verification so Important?

Rental verification is extremely important because it shows the mortgage lender that borrowers have made timely rental payments for at least 12 months. It proves that borrowers are used to paying housing payments. Verification of rent with a low payment shock is considered a top compensating factor. It proves that a potential home buyer can easily transition from renting to paying a mortgage. This is especially the case if there is very little payment shock. Also, if renters live rent-free with family or friends and pay no monthly rent, the new proposed mortgage payment will be a big financial surprise to first-time home buyers.

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Homebuyers who need to qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays on government or conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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Our team of licensed and support personnel is very creative and will guide every borrower to make the dream of homeownership a reality. Many mortgage lenders will require rental verification as part of their lender overlays. Gustan Cho Associates has zero OVERLAYS on FHA, VA, USDA, and conventional loans. If AUS does not have a condition for verification of rent, we will not require it. In the following paragraphs, we will cover the verification of rent requirements on manual underwriting.

Verification of Rent Requirements on Manual Underwriting

Verification of rent can be proven if a renter can provide 12 months of on-time canceled checks or bank statements. The past 12 months of canceled checks or bank statements must be on time with no late payments.  This proves the renter has been timely with housing payments for the past twelve months. Cash-paid receipts do not count. Only canceled bank checks, bank statements, or a letter from a registered property management company are valid sources. In this article, we will discuss the following topics:

• The importance of rent verification
• Why is verification of rent mandatory on manual underwriting?
• Verification of rent is the most important form of compensating factor.

Manual Underwriting require verification of rent. Sometimes, borrowers may undergo manual underwriting rather than automated. Manual underwriting involves a more thorough evaluation of the borrower’s financial profile. VOR may be required to verify rental payments in such cases. Gustan Cho Associates will exempt verification of rent for borrowers who have been living with family rent-free to save money to purchase a home.

VA and FHA Loan Manual Underwriting Requirements

VA Home Loans and FHA Loans allow manual underwriting on files that cannot get approve/eligible per Automated Underwriting Findings. Mortgage borrowers who need manual underwriting loans must realize that rent verification is required on manual underwrites. VA and FHA have guidelines on manual underwriting: Verification of rent, also referred to as VOR, is one of the most important compensating factors when qualifying for a mortgage. Verification of rent, also known as VOR, is proof of rental payments for the past 12 months.

Verification of Rent Mortgage Guidelines

The only way to prove it is by providing a mortgage lender with 12 months of canceled checks or bank statements to a private landlord. One missed rental payment without a check will void the verification of rent. Renters renting a rental unit from a registered property management company can get a VOR  letter provided by the lender completed and signed by the property manager.

What Does VOR Entail For It To Be Valid

The VOR Form needs to state that the renter has been on time with rental payments for the past 12 months. Renters renting from registered property management companies must not provide 12 months of canceled checks or bank statements. This article will discuss and cover the verification of rent required on manual underwriting guidelines. Mortgage applicants with certain lenders may require verification of rent as part of their overlays even if the Automated Underwriting System (AUS) does not require it. Most lenders will require VOR for certain applicants.

Why Is Verification of Rent Required on Manual Underwrites?

Verification of rent required on manual underwrites is mandatory. Those who cannot provide VOR will not qualify for manual underwriting. If a mortgage lender requires verification of rent, VOR, from a mortgage loan applicant living with family or rent-free, it can create major issues in getting a mortgage loan approval. There are exemptions. Gustan Cho Associates WILL ACCEPT borrowers living rent-free with family members if the family member can complete, date, and sign a living rent-free form provided by the lender. The number one reason verification of rent is so important for lenders is because it determines payment shock.

Rental Verification Determines Payment Shock

Mortgage lenders view this as a payment shock where first-time homebuyers are going from paying zero monthly rent to, for example, a new $1,500 mortgage payment. However, first-time home buyers currently pay $1,400 per month, and the new proposed mortgage payment will be $1,500, so there is hardly any payment shock. Payment shock is the difference between how much the renter was paying for rent versus the new proposed housing payment (PITI).

If a renter pays $1,000 monthly and the new proposed mortgage payment with property taxes and insurance is $1,200, the rental shock is 20%. A payment shock of less than 10% is considered compensating factor.

Lenders will feel comfortable seeing a renter who has had a history of paying $1,000 rent in the past 12 months being able to pay a $50 increase or no increase on a new housing payment. The lower the payment shock, the better-compensating factor it is. Lenders want to see if the borrower has a history of paying a housing payment, so the adjustment to their new mortgage payment is not a shock. If a renter goes from paying zero a month because of living rent-free and the new mortgage payment is $1,200 monthly, that would be considered a high payment shock.

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Need Proof For Verification of Rent To Be Valid

Some so many renters deserve to have verification of rent credit. Unfortunately, they cannot use rent verification because they have been paying their monthly rent with cash instead of a bank check. Renters renting from a private landlord need 12 months of canceled checks or bank statements to prove rent verification with no late payments in the past 12 months.

Cash payment or one missed payment without a check will disqualify the verification of rent. Many renters who pay their landlords with cash and get a cash-paid receipt will not be able to use this as a verification of rent.

For renters renting a home or apartment from a property management company registered and licensed by the state, a VOR Form provided by the mortgage company is completed and signed by the property management homeowner association manager. The VOR Form completed, dated, and signed by the property management company can be used in lieu of the 12 months canceled checks.

When Will Lenders Require Verification of Rent From Borrowers

Mortgage lenders will often require verification of rent (VOR) when a borrower is applying for a mortgage and currently rents their primary residence. The purpose of VOR is to verify the borrower’s rental payment history and assess their ability to make consistent and timely housing payments, which is an important factor in determining their creditworthiness and eligibility for a mortgage loan. Mortgage lenders typically request VOR when the borrower has limited credit history. Borrowers with a limited credit history or a thin credit file may be asked to provide VOR as part of the mortgage application process. Verifying a history of on-time rental payments can help demonstrate the borrower’s ability to manage housing expenses responsibly.

Rental Verification Required For Borrowers With Non-Traditional Credit History

Borrowers who lack traditional credit references, such as credit cards or auto loans, may be asked to provide alternative forms of credit history, including VOR, to demonstrate their creditworthiness. Borrowers should be prepared to provide their rental payment history documentation, such as canceled rent checks, bank statements showing rent payments, or a letter from their landlord confirming the rent amount and payment history. Accurate and timely verification of rent can streamline the mortgage application process and increase the likelihood of loan approval.

Exempt From Verification of Rent Being Required

For borrowers with solid credit, good income, great credit history, solid employment history, and reserves, the chances are that verification of rent will not be required. However, if credit scores are lower than 620, have outstanding collections, limited credit tradelines, short credit history, high debt-to-income ratios, and derogatory credit, then mortgage underwriters may require verification of rent. Just because one lender requires verification of rent does not mean another mortgage lender will require it. If borrowers are being requested VOR by an underwriter when AUS is not conditioning it, please contact us at Gustan Cho Associates. Gustan Cho Associates has zero overlays on government and conventional loans. If AUS does not require it, neither do we.

Cases Where Manual Underwriting Is Required

In cases where borrowers cannot get approve/eligible per DU FINDINGS or LP FINDINGS and get a referred/eligible per FINDINGS, the file can still get approved via manual underwriting. Manual underwriting is when borrowers can qualify for VA or FHA loans but not through the Automated Underwriting System. Almost all manual underwrites require verification of rent, VOR. There may be a lender or two that will not require a verification of rent.

Compensating Factors Required For High Debt-to-Income Ratio Borrowers

Strong compensating factors will be required, such as high credit scores, larger down payments, and strong reserves. There cannot be any late payments on manual underwrites in the past 12 months. No late payments after bankruptcy or foreclosure unless the borrower has strong compensating factors.

Verification of rent may be needed to accurately calculate the borrower’s debt-to-income ratio (DTI), which is a key factor in determining mortgage eligibility.

Rental payments in the DTI calculation provides a more comprehensive picture of the borrower’s financial obligations. Lenders may require VOR as part of the income qualification process, especially if the borrower’s income alone is insufficient to qualify for the desired mortgage amount. Demonstrating a history of consistent rental payments can help strengthen the borrower’s case for loan approval.

FHA and VA Loans During and After Chapter 13 Bankruptcy Discharge

Homebuyers can qualify for FHA and VA loans during Chapter 13 Bankruptcy repayment plan with trustee approval. Most bankruptcy trustees will approve a mortgage on a home purchase during the Chapter 13 bankruptcy repayment plan. There is no waiting period after the Chapter 13 Bankruptcy discharge date to qualify for VA and FHA loans.

Any Chapter 13 bankruptcy with less than two years seasoning from the discharge date on VA and FHA loans is manual underwriting, and manual underwriting guidelines apply.

Borrowers who need to qualify for FHA Loans or VA Loans during or after the Chapter 13 bankruptcy discharge date, please get in touch with us at Gustan Cho Associates at 800-900-8569. Or text us for a faster response—or email gcho@gustancho.com. The team at Gustan Cho Associates comprises experts in manual underwriting. We have zero FHA, VA, USDA, and Conventional loan overlays.

FAQ: When Is Rental Verification Required By Mortgage Lenders

• 1. When is rental verification required by mortgage underwriters? Mortgage underwriters may require rental verification when borrowers apply for a mortgage, especially if they have lower credit scores, limited credit history, high debt-to-income ratios, or outstanding collections. This provides proof of timely rental payments for at least 12 months, strengthening the borrower’s credit profile.

• 2. Under what circumstances is manual underwriting required, and does it affect rental verification? Manual underwriting is required when automated underwriting systems cannot approve the loan file. FHA and VA loans allow manual underwriting; in such cases, verification of rent (VOR) is mandatory. Borrowers must provide evidence of timely rental payments, typically through canceled checks, bank statements, or a VOR form from a registered property management company.

• 3. Can rental verification be waived, and if so, under what conditions? Rental verification may be waived for borrowers who live rent-free with family members to save money for a home purchase. In such cases, Gustan Cho Associates offers a waiver if the family member completes and signs a living rent-free form provided by the lender. However, for most borrowers, rental verification is a crucial aspect of the mortgage application process.

• 4. What forms of documentation are accepted for rental verification? To verify rental history, acceptable forms of documentation include canceled checks or bank statements demonstrating on-time rental payments over 12 months. A completed and signed VOR form may also suffice if renting from a registered property management company. Cash or missed payments without checks are not valid for rental verification purposes.

• 5. Why is rental verification important for mortgage lenders? Rental verification is crucial for mortgage lenders as it demonstrates the borrower’s ability to make consistent and timely housing payments. It helps assess creditworthiness, especially for borrowers with limited credit history or non-traditional credit references. Rental payment history is often used to calculate debt-to-income ratios and evaluate compensating factors for loan approval.

• 6. Are there exceptions to rental verification requirements? Exceptions to rental verification requirements may exist for borrowers with strong credit profiles, substantial reserves, and solid employment histories. However, for most borrowers, especially those undergoing manual underwriting, rental verification is standard practice to assess creditworthiness accurately.

• 7. How can borrowers qualify for FHA and VA loans during or after Chapter 13 bankruptcy discharge? Borrowers can qualify for FHA and VA loans during or after Chapter 13 bankruptcy discharge. Still, manual underwriting guidelines may apply, especially if there is less than two years of seasoning from the discharge date. Gustan Cho Associates specializes in FHA and VA loans with no overlays, providing expert guidance for borrowers in unique financial situations.

• 8. How can borrowers contact Gustan Cho Associates for mortgage assistance? Borrowers can contact Gustan Cho Associates by calling 800-900-8569, texting for a faster response, or emailing at gcho@gustancho.com. Gustan Cho Associates is a mortgage team that assists borrowers seven days a week, including evenings, weekends, and holidays.

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