FHA permits inclusion of positive rental history for first-time homebuyers
First-time homebuyers in Winter Park and the Greater Orlando area face many obstacles when buying a home. Some of those hurdles include saving for a down payment, having extra money for closing costs, home affordability, and qualifying for a loan. In addition, up until now, first-time homebuyers could not use their rental payment history to qualify for a more affordable FHA loan. The FHA recently announced that they would accept positive rental payment history as an additional factor in credit assessment performed in the Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard to determine eligibility for an FHA-insured mortgage. First-time homebuyers may now find qualifying easier if they meet all the other parameters associated with an FHA loan.
Florida first-time homebuyers who are renting could not use rental payment as proof of a solid housing payment history. However, the new FHA announcement expands opportunities for first-time homebuyers. Now, underwriters can use positive rental payment history to indicate that borrowers who paid their rent on time are also likely to pay their mortgages on time. This change to the FHA requirement helps to remove barriers to homeownership for borrowers with less established credit histories.
What does a positive rental history mean?
Positive rental payment history shows that a borrower stayed current with all rental payments in the previous 12 months. A rental payment is considered on time when paid within the due month.
A first-time homebuyer refers to an individual who has not held an ownership interest in another property in the three years before the case number assignment, which occurs when you have an FHA loan. In addition, first-time homebuyers include an individual who is divorced or legally separated and has no ownership interest in a principal residence (other than joint ownership interest with a spouse) during the three years to case number assignment.
FHA requirements for FTHBs using rental payment history include the following:
- Purchase transactions only
- One borrower must be a first -time Homebuyer
- Minimum credit score 620
- One borrower must have 12 months of documented rental payments of $300 or more
Required documents include a copy of the executed lease agreement and any one of the following documents:
- 12 months of canceled rent checks
- 12 months of bank or payment service statement showing the rent was paid
- Landlord reference from a rental management company, if applicable
If a borrower is renting from a family member, they would need to provide a copy of an executed lease or rental agreement and 12 months of canceled checks or bank statements to show satisfactory payment history.
FHA loans are an affordable option for homebuyers wanting to enter the housing market. By adding a positive rental history indicator to the mix, FHA’s credit evaluation will become more inclusive and equitable, enabling more First-time Homebuyers to qualify for an FHA mortgage. If you are ready to stop renting and want to buy your first home in the Winter Park and Greater Orlando area contact one of our FHA loan specialists today!
