Do Mortgage Lenders Look at Rental History?

November 18, 2021 By , ,

For most renters, their rent payments are the largest single expense they’re responsible for on a monthly basis. Given that, a positive history of on-time rental payments seems like it would be pretty helpful on a mortgage application, right? But does rental history matter when buying a home? Let’s explore this and other questions relating to rental history for mortgage applications.

The Impact of Rental History on Home Buying: An FAQ

If you’re currently renting your home, but are hoping to buy a house of your own sometime soon, it’s important to understand the ways your rental history can impact your mortgage application. The important thing to remember is that your rental history is just one of several factors our teams will consider when looking at your application.

These answers to frequently asked questions should help you better understand the ways your rental history can impact your mortgage application.

Does eviction affect getting a home loan?

Evictions can have some impact on your mortgage application, but this alone likely won’t cause lenders to reject you. Mortgage applications bring together several different elements, including your credit report. Evictions themselves don’t go on your credit report, but if you were evicted due to nonpayment, your landlord may have hired a collection agency. Debts in collection do get added to credit reports, so that would likely have some impact on your application. However, if you paid that debt off seven or more years ago, it’s probably been removed from your report.

Father and son lifting moving boxes at new home

Do mortgage lenders care if you have a good rental history?

For a long time, your status as a good renter wouldn’t necessarily factor into the mortgage underwriting (i.e., application review) process. Mortgage lenders generally look into official reports, pay stubs and other objective sources rather than relying on, say, a positive character reference from a landlord. Since landlords usually don’t report accounts in good standing to credit bureaus, underwriters (i.e., the people who review mortgage applications) didn’t have access to this information.

Given how much renters spend on rent every month, it’s perhaps a bit unfair that a good rental history gets largely overlooked. Fortunately, though, that’s starting to change. In 2021, Fannie Mae announced a new initiative to include positive rental history information in the underwriting process. This information is gathered through an automated process in which an applicant’s bank statements are analyzed for regular rent payments.

This change is specifically designed to help more renters become homeowners by having their good standing as tenants act as part of the puzzle that demonstrates their fitness to borrow. Using rental history to qualify for mortgage will allow more people to show that they’re responsible and trustworthy.

Can you buy a house without rental history?

Yes, you can buy a house without rental history. The fact that it’s been so unusual to include rental history in the underwriting process shows that it hasn’t traditionally been an important factor of consideration for a mortgage application. Though that’s clearly changing with the new Fannie Mae underwriting initiative, that doesn’t mean that you’re now required to provide rental history information. Sharing your rental history via Fannie Mae’s new system is voluntary, ¬†and it won’t count against you if you opt out of sharing it (or don’t have history to share in the first place).

So you don’t need to worry about how to prove rental history for mortgage, or wonder “how much rental history do I need?” The answer is that if the rest of your application is strong, your lack of a rental history likely won’t even come up.

How to Make Sure You Have Good Rental History: Advice for Renters Becoming Homebuyers

The first piece of advice to give here is that you don’t need to worry too much about your rental history impacting your future ability to own a home. For example, if your landlord treats you unfairly and you decide to break your lease early, that won’t even come up on your mortgage application.

The underwriting process isn’t so much about judging your character or personality. It’s designed to give lenders a better idea of whether you can successfully pay back a mortgage on time, based on your current finances and your history of paying bills on time. That’s where your credit report comes in.

Close-up of young family having breakfast on box in new home

Still, it’s a good idea to try to build a positive rental history if you can, and to avoid eviction if at all possible to protect your credit. Here are some simple tips to keep in mind:

  • If possible, give the landlord a background check while they’re processing your rental application. If the landlord is a property management company, search for their reviews to see if tenants have had good experiences with them. Ask around the building about whether the landlord is fair. That can help ensure that you avoid unfair eviction by a sketchy landlord.
  • Pay your rent on time every month to build up that positive history. If you’re facing short-term financial difficulty, address the issue with your landlord as soon as possible. It can be a difficult conversation to have, but your landlord may help you work out a modified payment plan or some other arrangement to keep you in good standing. That’s part of the reason why it pays to find a fair landlord if you can.
  • If you’re facing serious hardship, see if your landlord will let you out of your lease early. Research your state’s landlord-tenant laws to see if there are any special rules to help you avoid eviction. There may also be programs in place from local organizations or government agencies that can help you stay in your home while you get back on your feet.

Another important thing to know about this change from Fannie Mae is that your rental history can only count toward your application in a positive way. If you’ve been late on a couple of payments in the recent past, that’s OK. Those incidents won’t count against you according to Fannie Mae’s new system.

Have more questions about whether you’re ready to become a homeowner? Reach out to our Mortgage Advisor teams to start a conversation!

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