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FHA to Consider Rent Payments of First-Timers

Calling on-time rent payments a good indicator of reliability, the FHA commissioner says first-time buyers may be able to include them for loan consideration.

WASHINGTON – The Federal Housing Administration (FHA) published a letter to lenders on Tuesday urging them to consider including a borrower’s positive rental payment history when applying for FHA-insured financing. The move is believed to be a boost for first-time home buyers to help improve their credit scores when applying for a mortgage, the memo reads.

“If you’re regularly paying your rent on time, that’s a good indication you will also pay your mortgage on time,” says Julia Gordon, Federal Housing commissioner. “We hope that adding this positive factor to all of the characteristics currently considered in an FHA credit evaluation will increase access to affordable FHA-insured mortgages for first-time home buyers.”

The FHA considers “positive rental payment history” as on-time payment of all monthly rent over the previous 12 months. Lenders originating purchase mortgages for FHA insurance must obtain verification of the borrower’s timely rental payments and indicate it on their TOTAL Mortgage Scorecard, which the FHA uses to evaluate borrower credit history and mortgage application information when underwriting loans.

“This change makes FHA requirements more flexible and can help remove barriers to homeownership, particularly for those with nontraditional credit or thin credit files,” says Julienne Joseph, deputy assistant secretary for single-family housing.

The FHA’s move follows on the heels of an announcement by Experian, one of the main credit bureaus, that its Experian Boost program would offer a way for consumers to add qualifying, positive residential rental payments directly to their credit file. Experian’s research determined that 66% of its consumers will see an instant increase in their FICO score by factoring in on-time rental payment data. The credit bureau said consumers who would see the biggest improvement – about 14 points – are those with thin credit files or low FICO scores.

In 2021, Freddie Mac announced a new program to help renters build up their credit profiles and help make them more creditworthy. The initiative provides a means for owners or managers of multifamily properties to report on-time rental payments to the three major credit bureaus.

The goal is to help more than 45 million U.S. adults that have a weak or nonexistent credit score.

Source: National Association of Realtors® (NAR)

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