Is Rental Verification Necessary To Buy House By Lenders

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Is Rental Verification Necessary To Buy House By Lenders

This BLOG On Is Rental Verification Necessary To Buy House By Lenders Was UPDATED On April 17th, 2019

When Is Rental Verification Necessary To Buy House?

Is Rental Verification Necessary To Buy House?

  • What potential home buyers are living with parents to save up money for the down payment on home purchase 
  • What home buyers are living with a roommate and are paying the utilities on the home and roommate is paying for rent?
  • Many first time home buyers often ask the question is rental verification necessary to buy house?
  • The answer to is rental verification necessary to buy house depends on what borrowers credit scores are and whether mortgage loan application needs a manual underwriting

What Is Rental Verification?

Rental Verification , also called verification of rent and VOR, is only valid if the renter can provide the mortgage lender 12 months of on-time canceled checks and/or bank statements paid to the landlord.

  • If the renter does not pay their monthly rental payments with a bank check, 12 months copy of cashier’s check and/or money order is permitted
  • Online bank funds transfer from the renter’s bank account to the landlord’s bank account is also allowed
  • This is allowed as long as the renter can provide 12 month’s bank statements showing timely rental funds transfer
  • Borrowers cannot be late on monthly rental payments in the past 12 months
  • Renters renting from a property management company can have the property manager sign a verification of rent form that is provided by the lender
  • VOR Form signed by property management company can be used in lieu of bank statements and/or canceled checks
  • Cash rental payments do not count even though the renter can provide cash paid receipts by the landlord

What Is Payment Shock?

Verification Of Rent is extremely important because it shows the amount of payment shock the new home buyer will have.

  • Payment shock is the amount of increase of the new housing payments will be to the new home buyer over the rent they have been paying
  • For example, if a renter was paying $1,500 rental payments and the new mortgage payment will be $1,500, then there is no payment shock because of the new P.I.T.I. ( Principal, Interest, Taxes, Insurance ) is the same as the rental payment was
  • If the new mortgage payments are $2,250, then the payment shock is 50% because the new P.I.T.I. is 50% more than what the rental payments were
  • Home Buyers who used to live with family rent free are going from paying zero in monthly rent payments to a new housing payment which mortgage lenders question on whether the home buyer can take the sudden payment shock
  • Is Rental Verification Necessary To Buy House?
  • We will answer this key question that many home buyers, especially first time home buyers, often ask

Is Rental Verification Necessary To Buy House: Automated Underwriting System

Every mortgage loan applicant needs to complete a 4-page mortgage loan application called 1003.

  • The mortgage loan originator will carefully review the mortgage loan application
  • Loan Officer will make sure that all the information on the application is correct, especially the following:
    • income information
    • liabilities
    • assets
    • public records such as whether the loan applicant had any prior bankruptcies and/or foreclosure
  • The mortgage loan officer will then pull a tri-merge credit report
  • Loan Officer will populate the credit report to the mortgage loan applicant’s file
  • The loan officer will then submit a file to the Automated Underwriting System where the automated system will render a decision
  • The three readings will either be
    • approve/eligible
    • refer/eligible
    • refer/caution
  • Refer/Caution per automated findings means borrowers do not qualify
  • Approve/Eligible Per DU Findings  means borrowers are set to go
  • Refer/Eligible Per DU Findings means borrowers are eligible for a home loan
  • However, the mortgage loan application needs to be a manual underwrite
  • The decision rendered by the Automated Underwriting System will list of conditions borrowers will need to provide
  • If the automated findings state that rental verification is required, then VOR is a requirement
  • However, if the borrower’s credit scores are 620 or higher, then the chances are that RENTAL VERIFICATION WILL NOT BE REQUIRED
  • If borrowers credit scores of under 620, verification of rent may or may not be required

Home Buyers who do not have rental verification and have credit scores of under 620, please contact me at 262-716-8151 or email me at gcho@gustancho.com so I can either help boost your credit scores over 620 or go over a strategy where you can qualify without verification of rent.

Manual Underwriting Requires Rental Verification

If a mortgage loan file needs to be manually underwritten, then rental verification will be required. All mortgage loan applications after Chapter 13 Bankruptcy discharge are manually underwritten loans so verification of rent will be required. All VA and FHA Loans during Chapter 13 Bankruptcy Repayment Plans are all manually underwritten loans. Mortgage loan applications with credit disputes that cannot be retracted or those who are identity theft victims and there are errors on their credit reports are manually underwritten loans. All manual underwritten loans need timely payments in the past 12 months. Home Buyers who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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