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 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.

Manual Underwriting Is When Is Rental Verification Required

All manual underwriting files require verification of rent. However, for homebuyers who do not have rental verification due to living with 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 by the landlord.

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 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 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 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 a valid verification of rent for borrowers.

When Is Rental Verification Required And How Is Rental Verification Proven?

Renters renting an apartment or home will be asked by lenders how they are paying their monthly rental payments: For renters paying monthly rent with cash, the rental verification cannot be used. Even though they are armed with paid cash receipts 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 canceled 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 homebuyers who are planning on purchasing a home in the near future and have been paying the landlord with cash, need to start paying monthly rent payments starting with checks effective immediately.

When Is Rental Verification Required: 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.

How Is Verification Of Rent Valid For Mortgage Lenders

Rental Verification is only valid if the renter has been paying rent timely for the past 12 months. If the 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.

What Is Payment Shock For Mortgage Lenders

Mortgage lenders view this as a payment shock where first-time homebuyers 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 a mortgage with a mortgage company licensed in multiple states with no lender overlays on government and/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 gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The Best Mortgage Lenders For Bad Credit Borrowers With Low Credit Scores

Our team of licensed and support personnel are very creative and will guide every borrower to realize the dream of homeownership becoming 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. In the following paragraphs, we will be covering 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 and/or bank statements. The past 12 months of canceled checks and/or bank statements need to be on time with no late payments.  This proves the renter has been timely with their 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 allowed. In this article we will discuss the following topics:

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

Gustan Cho Associates will exempt verification of rent for borrowers who have been living with family rent-free in order 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 an approve/eligible per Automated Underwriting Findings. Mortgage borrowers who need manual underwriting loans need to realize that verification of rent is required on manual underwrites. VA and FHA have guidelines on manual underwrite: Verification of rent also referred to as VOR, is one of the most important compensating factors when it comes to 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 and/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 renter has been timely on rental payment for the past 12 months. Renters renting from registered property management companies do not have to provide 12 months of canceled checks and/or bank statements. In this article, we will discuss and cover Verification Of Rent Required On Manual Underwrites Guidelines.

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 is requiring verification of rent, VOR, from a mortgage loan applicant who is 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 who are living rent-free with family members if the family member can complete, date, sign a living rent-free form provided by the lender.

• Reason verification of rent is so important for lenders.
• This is because it determines payment shock.
• For example, if a renter is paying $1,000 per month and the new proposed mortgage payment with property taxes and insurance is $1,200, the rental shock is 20%.
• The lower the payment shock the better compensating factor it is.
• 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.
• Lenders want to see the borrower had a history of paying a housing payment so the adjustment to paying their new mortgage payment is not a payment shock.

If a renter goes from paying zero a month because of living rent-free and the new mortgage payment is $1,200 per month, that would be considered a high payment shock.

Need Proof For Verification Of Rent To Be Valid

There are so many renters who deserve to have verification of rent credit. Unfortunately cannot use verification of rent 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 and/or bank statements in order to provide proof of verification of rent with no late payments in the past 12 months.
• Cash payment or one miss payment without a check will disqualify the verification of rent.
• Unfortunately, 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 that is 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.

Do All Mortgage Lenders Ask For Verification Of Rent Required On Manual Underwrites

Verification of rent may be required by mortgage applicants with certain lenders as part of their lender overlays even if the Automated Underwriting System (AUS) does not require it.

• However, most lenders will require verification of rent for certain applicants.
• Borrowers with solid credit, good income, great credit history, solid employment history, reserves, then 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.
• Borrowers who 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 Loans and/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.
• However, strong compensating factors will be required such as high credit scores, larger down payments, and strong reserves.
• There cannot be any late payments in the past 12 months on manual underwrites.

No late payments after bankruptcy and/or foreclosure unless the borrower has strong compensating factors.

FHA and VA Loans During And After Chapter 13 Bankruptcy Discharge

Home Buyers can qualify for both FHA and VA loans during Chapter 13 Bankruptcy Repayment Plan with Trustee Approval. Most bankruptcy trustees will approve a mortgage during the Chapter 13 bankruptcy repayment plan on a home purchase. There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for VA Loans and FHA Loans. Any Chapter 13 Bankruptcy with less than two years seasoning from the discharged date on VA and FHA Loans is manual underwriting, Manual Underwriting Guidelines apply. Borrowers who need to qualify for FHA Loans or VA Loans during and/or after Chapter 13 bankruptcy discharged date, please contact 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 are experts in manual underwriting. We have zero overlays on FHA, VA, USDA, and Conventional Loans.