Rent payment verification and a credit history becomes an integral piece of the mortgage application process soon after you apply. Near the beginning of the mortgage application process rent payment history will be verified. When completing the mortgage application or any loan application one soon realizes the amount a borrower is paying for an existing mortgage or rent and who the mortgage payments or rent payments are made will need to be made known. If you are or have been a home mortgage holder the credit report will report pay history but if you have always been a renter most often this is not reported on your credit report UNLESS of course you did not fulfill your rental agreement and of course the negative would be reported. Whether you been a renter or a mortgage holder Verification of Rent or Mortgage payment history will be reviewed. Verification of Rent or (VOR) is one of the most important parts of the mortgage application process.
First time home buyers who have never owned a home or have not held a mortgage for at least three years who are also considered first time home buyers you will need to show how you are paying your monthly rent payments. Proof of rent paid and how you show rent payments have been made and payments are being made on-time is VERY important. The mortgage underwriter will require a 12 month or more of on-time rent payments to the landlord. If you are a first time home buyer and are renting an apartment or home how you have been making your rent payments becomes crucial. A borrower who is currently renting and has been paying monthly rent in cash the VOR cannot be used. After the meltdown of the mortgage industry in 2008 there have been many changes therefore “cash payments” do not help in rent payment verification even if you have been getting a receipt monthly and have maintained all of the receipts, this still cannot be used as rent payment verification.
Planning ahead for home ownership is a solid investment strategy, home ownership acts as a curve against inflation and captures appreciation. Most financial planners will advise home ownership so if you are a renter and are beginning to look for a house then you are planning to move from renter to owner. If you are renting from a private landlord and have been paying in cash immediately start paying with a check. The mortgage lender underwriter will ask for 12 months of cancelled checks. If any part of your rent has been paid with cash you do not have rent verification in the eyes of the underwriting team. Owning a home is a huge step in building assets and personal wealth, owning a home provides shelter and stability to a family. In America the pride that comes with home ownership is immeasurable. Considering this, if you are paying rent payments in cash, immediately start paying your monthly rent payment with a check immediately. Most banks do not mail your cancelled checks to you anymore, in fact I believe if you request this the banks now charge a monthly fee to do this. However, you can go to your banking institution and ask for a copy of check “paid item”. As stated any mortgage lender underwriter will ask for 12 months of cancelled checks.
So what do you do if you are already in the mortgage application process and you were not aware of all this and have been paying cash for your monthly rent payments. I personally have to chuckle a little bit at myself because early in my career with one of my first stabile jobs I would get paid twice a month. The day I received my physical check (most are electronic checks now) I would go to the bank, cash it and pay my bills. I referred to this as bills on wheels, this is laughable in today’s world because so many items can be paid electronic and online. If you are a home buyer and are paying rent in cash for an apartment or a home to a registered property management company then a letter from the Rental (Property) Management company can be used towards the rent verification to comply with the mortgage lender underwriting team. The letter will need to be from a professional property management company and must document you have been making timely monthly rent payments for the past 12 months. This letter will serve as documentation required to be used for rent payment verification.
Consider if you were lending thousands of dollars to someone you do not know personally in fact until you were ask to loan them money you never knew them. If this were the case, as the lender you would take every necessary step to reduce the risk of loss yourself as the lender if the borrower was to default on the loan you are making to them. Part of confidence you would have in them as a borrower is to look at their payment history. Small installment payments paid on time monthly and fulfilling any loan agreement previously would provide confidence in their intention to pay you back. However, moving from a small installment payment to a much larger monthly house payment is different both in amount loaned, terms and duration of the loan. Therefore as a lender your confidence in a borrower would vastly improve when you can verify with documentation they have been making timely rental payments for at least 12 months. If you are living rent free with family or even friends and have not been paying any monthly rent then a sudden new mortgage payment will be game changer for the new home buyer. Mortgage lenders refer to this as payment shock going from zero monthly to a large amount like $1200. On the other hand if you are a first time homeowner/home buyer and have been paying $1100 monthly rent and with the new mortgage will be paying $1200, this $100 difference would hardly be a bump.
The Larry Stepp Team at Gustan Cho Associates are committed to providing resources and information for the home buyer. It is our hope you will be confident armed with knowledge prior to applying for a new mortgage. My Team can guide you through the mortgage application process and I am available of 7 days a week, holidays and weekends.
Larry Stepp 407-922-4755 LarryS.email@example.com