Becoming a homebuyer these days sure can be challenging. Many people don’t have the advantage of purchasing a home right away and become renters first. Owning a home is a decision that has to fit your lifestyle and goals. Most of the time, however, this takes years of preparation before having the ability to buy a house. Many question whether or not renting helps you achieve homeownership and helps build your way to getting approval with a mortgage on a home. Recently, however, there has been a change in the way that renters can build momentum on achieving homeownership with the ability to make progress with a timely payment history that gives renters a chance that they may never have had before. In this article we’ll dive into how lenders may be able to leverage the power of renting to possibly help potential homebuyers on the path for homeownership.
Overcoming the Barrier of Homeownership when Renting
On August 11, 2021, Fannie Mae announced that it would begin to consider rental payment history in risk-assessment processes for prospective homebuyers. This landmark update, which went into effect on September 18th, 2021, will make a major difference to underserved borrowers. According to The National Low Income Housing Coalition, as much as 20% of the US population has little to no credit history, creating a large barrier for a disproportionate amount of Americans of color when trying to get a mortgage. Due to the fact that rental payment history, and coding make an impact on the consideration into FNMA’s automated underwriting system, it will help to lower this barrier and increase access to sustainable homeownership. Notably, the consideration of rental history will not consider missed rental payments that aren’t already on the credit report, so underserved borrowers will not find this addition to be an additional barrier to the American Dream.
CBC Mortgage Agency applauds Fannie Mae’s decision and cheers for the new homebuyers that will enter the market as a result. There is every reason to believe that a significant number of these borrowers will succeed in becoming responsible homeowners and accumulating wealth, which can uplift families for generations. This vision is backed up by an Urban Institute study that found that borrowers who missed no mortgage payments in a 24-month period consistently perform very well over the next 3-year period. For example, borrowers with credit scores below 700 but very consistent monthly rent payments have only about a 1% chance of being 90+ days late on any mortgage payment during the following three years. Unfortunately, this stability isn’t reflected in the borrower’s credit score because positive rental payments are rarely reported or reflect on credit score, but negative rental payments are.
Lenders now are able to expand and add additional opportunities with renters that are looking to become homebuyers. Before these potential borrowers, who previously may have seemed too risky when based on credit alone, now have the opportunity to prove themselves with their rental history, increasing the amount of potential borrowers that are more likely to achieve homeownership. To expand on the opportunity, the Chenoa Fund down payment assistance program offered by CBC Mortgage Agency may be able to additionally help with potential homebuyers that are challenged with the requisite down payment and closing costs. Visit chenoafund.org to learn more about how you may be able to offer Chenoa Fund to borrowers.
CBC Mortgage Agency – NMLS 1186381
For licensing information, go to www.nmlsconsumeraccess.org.
Chenoa Fund is a registered trademark.
Illinois Residential Mortgage License #MB.6761292. Illinois Department of Financial and Professional Regulation, Division of Banking, 100 West Randolph, 9th Floor, Chicago, IL 60601 – 1-888-473-4858; Georgia Residential Mortgage Licensee, License # 1186381.
Georgia Residential Mortgage Licensee, License # 1186381.
