Verification Of Rent And Cases Where VOR Is Required By Lenders

This Article Is About Verification Of Rent And Cases Where VOR Is Required By Lenders

Verification Of Rent is one of the most important factors required for manually underwriting. Verification Of Rent (VOR) with payment shock lower than 5% is considered a strong compensating factor by lenders. Verification Of Rent with a low payment shock is viewed extremely favorably by mortgage underwriters

  • Verification Of Rent also referred to as VOR, is proof that a renter has been making timely payments to his or her landlord for the past 12 months
  • Many renters do not realize the importance of verification of rent until its time to purchase a home and qualify for mortgage
  • Renters cannot pay landlord with cash even though they get a paid receipt from landlord
  • Cash payments cannot be used as proof even with a signed receipt and/or letter from landlord
  • In order for a verification of rent to be valid, the renter needs to provide 12 months canceled checks
  • Or bank statements that have been paid to the landlord if the landlord is a private landlord
  • If the renter is renting from a registered property management company, the canceled checks requirement is waived with a completed VOR Form completed and signed by the property management company manager
  • The lender will provide the VOR Form and as long as the property management company is registered
  • The registered property management company manager completes and signs it, it is sufficient
  • There are proper forms that need to be completed by both the landlord and/or the property management company that will be provided by the mortgage lender for the VOR to be valid

Transitioning From Renter To HomeownerVerification Of Rent

Transitioning from being a renter to a homeowner is a huge responsibility.

  • Lenders are also very concerned for first time home buyers who go from renting to owning a home
  • Underwriters will seriously look at payment shock
  • Lenders view first time home buyers as high risk and take that there is a considerable amount of risk of the first time homeowner defaulting on their mortgage loan
  • This is why verification of rent is so extremely important
  • Underwriters view the special emphasis on payment shock

For example:

  • the renter does not have verification of rent
  • will go from a zero per month payment history to new housing payment amount
  • let’s say $1,200 per month
  • However, renters proof of verification of rent that they have been making $1,000 per month
  • They can provide the lender with 12 months canceled checks that you have been making housing payment for the past 12 months
  • the home buyer now has a history of paying housing payment
  • Payment shock is 20% since going from $1,000 to $1,200
  • The new lender will not be concerned with new $1,200 per month housing payment as much as they will be going from zero to $1,200
  • 20% payment shock is high

However, underwriters will view other aspects of borrowers credit and financial profile in determining approval:

  • Many renters do not realize how huge it is for them to be paying their monthly rent payments with a bank check
  • Many renters have verification of rent but cannot use it because they pay it with cash

What Is Manual Underwriting?

Home Buyers need to consult with a loan officer if they intend to qualify for a mortgage:

  • The mortgage loan originator will take a mortgage loan application
  • Run a credit and submit mortgage loan application as well as a credit report to the Automated Underwriting System
  • An approve/eligible automated approval is what we need
  • The automated approval will dictate whether or not the mortgage loan applicant needs to provide verification of rent

If the automated approval states a verification of rent is required, the mortgage loan process cannot proceed unless the mortgage borrower can provide verification of rent, VOR.

Verification Of Rent On Manual Underwriting On VA And FHA LoansWhat is the Manual Underwriting On VA And FHA Loans

If the Automated Underwriting System renders a referred/eligible per automated findings on VA and/or FHA Loans, this means that the Automated Underwriting System cannot issue an automated approval. But the file can be downgraded to manual underwriting.

VA and FHA Loans allow manual underwriting on refer/eligible files:

  • Refer/Eligible per AUS can proceed via manual underwriting
  • Manual underwriting is when a mortgage underwriter is assigned to the mortgage loan application
  • The file needs to manually underwritten 
  • Compensating Factors are required on all manual underwrites
  • One month PITI reserves are required on manual underwriting
  • No late payments in the past 12 months

Verification Of Rent On Manual Underwriting

Verification Of Rent Is Required On Manual Underwriting

All manual underwriting requires verification of rent. Home Buyers in a current Chapter 13 Bankruptcy Repayment Plan and/or with a recent Chapter 13 discharge without a two-year seasoning from the discharged date are all manual underwriting. VA and FHA Loans are the two loan programs that allow manual underwriting.

  • There are cases where a mortgage loan applicant gets an approve/eligible per DU FINDINGS but the mortgage underwriting downgrades it to a manual underwrite due to the risk factors
  • Mortgage lenders consider a late rental payment as serious
  • Can be a cause for a mortgage loan denial
  • Home Buyers who are planning on qualifying for a residential mortgage in the near future, make sure to  make monthly rental payments with a bank check
  • Do not be late on monthly rental payments

Besides having timely rental payments, lenders expect to see borrowers making timely payments on all of the credit obligations for the past 12 months.

Related> Manual underwriting

Related> No active tradelines: Manual underwriting

Related> Automated underwriting downgraded to Manual Underwriting

Related> Manual underwrites: Referred Eligible per DU FINDINGS

  1. Piotr Kowalsky

    Hi there,

    I have a question, so I’m a first time Home buyer and I’m suppose to close on my first house this month. The loan officer called me and said Ive been approved by the underwriter however The loan officer told me they found a tax warrant under my name because I owe some state taxes.

    I called the state tax department and I’m on a payment plan now with them.
    You mentioned For FHA, they want to see 3 months of consistent payments before you can close on a house.

    Am I still allowed to make extra payments towards these tax debts? For example
    2 payments in one month?
    Or am I limited to only making 1 payment a month?

    1. Gustan Cho, NMLS 873293 says

      No you cannot prepay ahead. You need to have three months seasoning on FHA loans. You can qualify on conventional loans. Conventional loans require one month’s payment prior to closing.

  2. Nancy Sullivan

    Looking to buy a duplex, live on one side, and rent the other. Can we consider that future rent income?

    With other lenders, I’ve been told no. And I’m only getting approved for 150k.

  3. Craig Jackson

    I saw a video after a search on the web of your company offering mortgages with no tax returns. I have w2s and check stubs and a pretty good score. Can you help? And are you licensed in NC?
    Thanks for your time

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