When Is Rental Verification Required By Mortgage Lenders

This BLOG On When Is Rental Verification Required By Mortgage Lenders Was UPDATED And PUBLISHED On November 5th, 2020

Rental Verification is an extremely credit tradeline that will add strength to the mortgage loan borrower 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. All manual underwriting files require verification of rent.

• Many first time home buyers normally live with family or rent an apartment or home
• For those first time home buyers who are renting, proof of renting and showing the mortgage lender that they are paying their monthly rents 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 valid verification of rent
• Only 12 months canceled checks paid to the landlord or 12 months of bank statements are valid as rental verification

In this article, we will cover and discuss When Is Rental Verification Required By Mortgage Lenders.

Paying Cash For Rent To Property Management Company

Renters who are renting from a registered property management company are exempt from providing 12 months canceled checks and/or bank statements to validate verification of rent:

• Those who are living in an apartment complex and paying cash for their rent do not have to provide 12 months canceled checks and/or 12 months 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 valid verification of rent for borrowers.

How Is Rental Verification Proven?

Renters renting an apartment or home will be asked by lenders on how they are paying their monthly rental payments:

• Renters paying monthly rent with cash, the rental verification cannot be used
• Even though they are armed with paid cash receipt by landlords, the VOR is not valid
• Cash in the mortgage world is non-existent
• Renters renting from a private landlord and paying cash and getting a paid receipt every month, that still cannot be used as proof of rental verification

Only canceled checks and/or bank statements are valid in providing VOR.

Canceled Checks To Prove VOR

Renters renting an apartment or home from a private landlord, the only way they can show proof of rental verification is by providing the mortgage lender 12 months of cancelled checks:

• Paying part with check and part with cash is not valid and cannot be used as VOR
• This does not constitute VOR under the mortgage lenders eyes

First time home buyers who are planning on purchasing a home in the near future and have been paying landlord with cash, they need to start paying monthly rent payments starting with checks effective immediately.

Exception Where Cash Monthly Rental Payments Will Count Towards Rental Verification

As mentioned earlier, renters renting an apartment or home from a registered property management company and are paying them with cash every month, then a completed VOR Form from the property management manager can be used towards rental verification.

• Registered property management companies are exempt from the checks 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
• Rental Verification is only valid if the renter has been paying rent timely for the past 12 months
• If renter has been late multiple times, do not turn in the VOR. Verification Of Rent is not always required by mortgage lenders

Only those who have lower credit scores, not enough credit tradelines, gift funds, prior bad credit, late payments in the past 12 months, or substantial collections and/or charged off accounts are borrowers who will most likely require rental verification.

Why Is Rental Verification So Important?

Rental verification is extremely important because it shows the mortgage lender borrowers have been making timely rental payments for at least 12 months. It proves that borrowers are used to paying housing payments. Verification Of Rent with low payment shock is considered a top compensating factor. It proves that a potential home buyer can easily ease from renting to paying a mortgage. This is especially the case if there is very little payment shock.

• Also, renters living rent free with family or friends and paying no monthly rent, then the new proposed mortgage payment will be a big financial surprise to first time home buyers
• Mortgage lenders view this as payment shock where first time home buyers are going from paying zero monthly rent to, for example, to a new $1,500 mortgage payment

However, first time home buyers currently paying $1,400 per month monthly rent and the new proposed mortgage payment will be $1,500, then there is hardly any payment shock.

Qualifying For Mortgage With Lender With No Overlays

Home Buyers who need to qualify for mortgage with a direct lender with no mortgage overlays on government and/or conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. Our team of licensed and support personnel are very creative and will guide every borrower realize the dream of home ownership become 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 condition for verification of rent, we will not require it.