In this blog, we will cover and discuss how paying rent timely will help get a mortgage approved. Homebuyers who have little to no credit tradelines and get a refer/eligible now have a chance to get an approve/eligible per an automated underwriting system will timely rent payments.
Does Rental Payment History Help When Applying for a Mortgage?
In this blog, we are going to discuss if and how rental payment history can affect you when applying for a Mortgage. Many home buyers do not know the answer to this question, but knowing could be imperative when you decide to buy a home! First-time home buyers have no previous mortgage history, that is when paying your rent on time will help.
What Classifies As A First-Time Homebuyer?
Who qualifies to be a first-time home buyer? A First time home buyer is anyone who has not held an ownership interest in a property within the last 3 years. A first-time home buyer can be someone who is coming out of a divorce or who is “legally” separated that hasn’t had sole ownership in a primary residence within the last 3 years.
However, it is ok for them to have joint ownership with their previous partner. When depending on rental payment history to support your request for a mortgage, the mortgagee can use written documentation to support your file. First, you would need to include either the previous rental contract or the lease agreement.
In addition, the mortgagee will accept any of the following, a letter verifying a minimum of twelve consecutive months with good payment history from a landlord that is NOT family or a property management company, and either twelve months of consecutive bank statements or twelve consecutive months of cleared check receipts.
How Can I Qualify and Pre-Approved For a Home Mortgage
Other requirements for first-time buyers would include minimum credit score guidelines from HUD, VA, USDA, Fannie Mae, and Freddie Mac and the rental premium for the previous twelve months would need to be higher than $300.00 per month. If your previous landlord was a family member it is required to still provide the lease or rental agreement along with twelve consecutive months’ bank statements showing the payment or canceled checks. Knowing how important rental payment history is, can be your key to the American Dream of Homeownership!
How Much House Can You Afford?
Now that we know how important it is, let’s talk about ways to ensure your payments are made in a timely manner. First, it is vital that you establish a budget. By budgeting your money and living within your means, you should be able to make your rent payments on time. Many people have a hard time and often live “paycheck to paycheck”. The best way to set up a budget is to figure out how much money you bring home each month.
How Much Can I Afford Versus How Much Can I Qualify?
Once that number is determined, in a perfect world, you would want to put ten percent of your weekly or biweekly income into a savings account. With the remaining ninety percent, you should prioritize where that money is spent. I think the obvious first choice should be your housing needs which according to the national average would be thirty percent.
The other sixty percent of your income is personal preference on how it is spent. If I could suggest one thing, before you spend on frivolous things try to add extra money to your savings until you build up three months’ reserves for your rent. If you live within those guidelines, financial stress should not be a factor in your daily life. You are also on your way to owning a home!