When you apply for a mortgage, lenders usually verify that you have made your housing payments -- be it your rent or mortgage payment -- on time for the prior twelve months. Lenders view your recent housing payment history as an indicator of your ability to pay your mortgage on time.
If you have one or more late housing payments during that time period, it may be challenging for you to qualify for a mortgage. In some cases you may be able to provide a letter of explanation to address the issue but in other cases you may be required to wait until you have twelve consecutive months on time housing payments before you can qualify for a mortgage.
If you currently have a mortgage, your payment history is included on your credit report which makes it easy for the lender to review. If for some reason your payment history is missing from your credit report you can request one from your lender or provide cancelled checks or account statements that show you have made your payments on time. In short, with a mortgage there is always a paper trail that reflects your payment history.
If you rent instead of having a mortgage, your payment history can be more challenging to provide. In most cases, your rent history is not included on your credit report, although there are companies that provide this service for a fee. If your rent is not on your credit report you can provide cancelled checks or bank account statements that enable the lender to verify your past rent payments.
If you pay your rent in cash, however, then you need to use alternate methods to demonstrate your payment history. The preferred approach is to have your landlord write a letter that states that you have made your rent payments on time for the prior twelve months or as long as you have lived in the property, if possible. It can also be helpful if the letter outlines the terms of your lease including your monthly payment.
If your landlord refuses to provide a letter, then your other option is to provide bank account statements to the lender and note the withdrawals that were used to pay the rent. If possible, we also recommend that you provide a copy of your lease agreement so that the lender can cross reference your monthly payment amount with your account withdrawals. Although this is an imperfect way to demonstrate your rent payment history, it may satisfy the lender’s requirement on this point.
Please note that rent payment history guidelines and documentation requirements vary by lender and loan program. For example, some lenders required cancelled checks to verify your rent payment history while other lenders do not. Other factors including your credit score, payment history for other debt accounts and overall financial profile may impact the information requested by lenders. Additionally, payment history verification guidelines are typically more flexible for an FHA mortgage than for a conventional mortgage.
If you have a unique housing payment history, we recommend that you contact multiple lenders to understand their qualification and documentation requirements. Explain your circumstances to the lender and ask for specific guidance on what you need to do to qualify for the mortgage. If one lender says you cannot qualify for a mortgage then contact another -- just because one lender applies a certain policy does not mean all lenders do.
The table below outlines mortgage terms for leading lenders near you. Shopping multiple lenders is the best way to the loan and program that are right for you.
"B3-6-05, Monthly Debt Obligations, Rental Housing Payment." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.
"II.A.4. Underwriting the Borrower Using the TOTAL Mortgage Scorecard." FHA Single Family Housing Policy Handbook 4000.1. Federal Housing Administration, January 2 2020. Web.