Fannie Mae Must Consider On-Time Rent Payments When Underwriting Mortgages, Good News For Home Buyers
It’s about to get easier for homebuyers with limited credit histories to qualify for a mortgage, thanks to a new decision by Fannie Mae to consider on-time rent payment history. an applicant when determining loan eligibility.
Starting September 18, 2021, single-family lenders will be able to automatically identify a pattern of recurring rent payments in an applicant’s bank statements during the underwriting process “to provide a more inclusive credit score.” according to a press release from Fannie Mae.
This is just an important step to correct housing inequalities of the past, create a more inclusive mortgage credit assessment process in the future, and encourage the housing system to develop new ways of assessing and determining secure mortgage eligibility in order to fairly serve all potential homeowners. .
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This is good news for homebuyers with a limited credit history but a strong record of on-time rent payments. About 20% of American adults have poor credit history, in part because only 5% of renters today report their rent payments on time to the credit bureaus.
Read on to learn more about the impact of your credit rating on your mortgage eligibility. If you are in the market to buy a home, visit Credible to buy a mortgage without affecting your credit score.
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Why is your credit score important when buying a home?
A person’s credit rating is supposed to be an overall measure of their fiscal responsibility, but it is not always the case. Credit bureaus (Equifax, Experian, and Transunion) expect to see a long history of miscellaneous accounts, making it difficult for young consumers who fear credit cards to achieve a good credit score.
But without a solid credit history, it’s harder to access financial products that help you get through life’s stages, like buying a home. This is because mortgage lenders determine your likelihood of paying off the loan based on your credit score.
Fannie Mae’s latest guidelines have the potential to help millions of potential buyers who are able to make their mortgage payments but do not have an established credit history. Research shows that 17% of mortgage applicants who were recently ineligible for conventional loans would have qualified had their on-time rent payments been factored in.
Even with this new underwriting option, however, it can still be difficult for borrowers with bad credit to get approved for a home loan, especially at the lowest rates available. The best mortgage rates with the lowest monthly payments are reserved for mortgage applicants with an excellent credit rating and an excellent debt-to-income ratio (DTI ratio), according to a credible analysis.
It’s also important to do your research and shop around with mortgage lenders to see what type of rate you may qualify for. View the estimated interest rates for borrowers with scores of 740 or higher in the table below, and visit Credible to compare mortgage rates from several lenders.
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To buy a house ? Here’s how you can build your credit score
Just because you can qualify for a mortgage without a decent credit history does not mean that you will get a good mortgage rate or a sufficiently large loan amount. If you are in the market to buy a home, it is always a good idea to work on building your credit before applying for a mortgage. Here are some ways to improve your credit score:
- Keep paying your bills. On-time payment history is the single most important factor affecting your FICO score, so it’s important to track your payments and dispute overdue false payments on your credit report.
- Pay off credit card debt. Your credit utilization rate, which is the amount of credit you use versus the credit you have, should ideally be less than 30%. Try to increase your monthly debt repayments.
- Request a credit limit increase. Ask your credit card issuer to increase your credit limit to reduce your credit utilization rate. Just make sure you don’t spend more money because your limit is higher.
- Open a secure credit card. Also called a credit card, a secure card requires you to make a cash deposit. You can borrow money from these funds to help you make your payments on time.
- Request to be an authorized user. If you’re close to someone who makes regular credit card payments on time, being added to their account can boost your credit score.
Potential buyers should also keep an eye on their credit rating during the mortgage process. Credit monitoring can help you stay on top of any changes to your credit rating, so you aren’t caught off guard when you’re ready to apply for a mortgage. Sign up for free credit monitoring services on Credible.
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