Inevitably, people who rent or live at home always run into this problem - they do not have a 12 month history of rental payments. So when they decide to apply for a mortgage loan, this fact slaps them right in the face, and can lead to the borrower not being approved.
Of course, this does not apply to those who live in apartment complexes, or have a mortgage in their name that reports to the credit bureaus. The rental or mortgage history is easy for a prospective lender to track in this case, because a apartment complex is a non-interested third party, and your mortgage company will report to the bureaus if you are late with your payment.
The problem arises when a potential borrower lives at home with his or her parents. If you are seeking FHA financing you may be okay (with certain lenders and when certain loan parameters are met, rental history is not required), but as lenders continuously tighten lending requirements, I have seen rental documentation become a requirement on some FHA loans.
So I am going to say what all mortgage industry professionals know, but the general public seems to be totally unaware of - You must pay your rent with a check, or automatic withdrawal from your banking account. And you must pay at the same time, AND same amount, for 12 months consecutively, in order for a lender to consider your rental history as valid. Renters which have a landlord will be required to provide rental documentation in the form of 12 month's bank statements, because the lender will not accept a VOR (Verification of Rent) from this source. The landlord is deemed to be an INTERESTED party (they may not tell the truth about the rent being paid on time, or they could say you were late one month, and you weren't), so lenders do not accept any written documentation from the property owner. VOR's are only acceptable from a apartment complex or property management company.
I have had people to say they pay by checks some months, then by money order, then - sometimes with cash. Or they paid $600 last month, and $750 this previous 10 months, but have been able to skip a month or two because they did some personal favor for the landlord. All of this sends a red flag to the lender, and the borrower with the best credit scores and income is all of a sudden in trouble.
So, if you are a person wishes to purchase a home within the next 12 months who lives at home with your parents rent-free, has a roommate that you share a apartment with but you're not on the lease, or rent from a private landlord, do yourself a BIG favor - open a checking account and pay by check from NOW ON.
When it's time to buy your new home and get mortgage financing, you will be glad you did...
Frugality, Productivity, and the Local Maximum
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