Paying your
rent may help you buy a house —
and much more
Homeownership may be a personal goal for many people. Your house or apartment is more than just a shelter, it can be a launching pad for your future, the base from which you build a life in a new city, a family, a career, and financial security for you and possibly your loved ones. And one factor in achieving that goal is maintaining good credit.
By now, we know some of the best ways to boost your credit score: keep a low balance on your credit cards, pay your bills on time, and eliminate bad debt. But there’s something else you can do while you set your sights on owning a home, something you’re probably doing already — pay your rent.
It makes sense, right? Rent is one of the biggest and most regular monthly payments you make. Paying your landlord in full and on time every month may indicate to a bank or lender that you will do the same with your mortgage payment. However, your landlord or property management company may not report your rent to the three major credit bureaus and, even if it does appear on your credit report, it may not be automatically factored into how you are evaluated for a mortgage loan.
But you can change that.
Although the credit score most commonly used by the mortgage industry today does not take into account rental payments, if your record of on-time rental payments appears on a credit report, lenders can still consider it as part of their credit evaluation while underwriting a loan.
Amount of outstanding debt
Bill-paying history
Number of loans or accounts
Make Rent Count
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Whether you have had a debt collection, foreclosure, or bankruptcy
New applications for credit
Once your rental payments are included on your credit reports they can be used to help you build your credit history and even help boost some credit scores. Better credit scores may lower the cost of financing to purchase a car, start a small business, or borrow for education. Although the credit score most commonly used by the mortgage industry today does not take into account rental payments, if your record of on-time rental payments appears on a credit report, lenders can still consider it as part of their credit evaluation while underwriting a loan. The benefit overall of having it reported is to help build a credit history that showcases an easily accessible track record of consistent, on-time payments of one of your biggest monthly expenses.
For more information about debt management and its impact on your credit, go to www.fanniemae.com/crediteducation.
There are ways that you can work with your property manager or building owner to report your rent payments and have it included in your credit reports. For a fee, you can also use rent reporting agencies to help add your rent payments to your credit history. Fannie Mae introduced a Positive Rent Payment reporting program that enables some property managers of multi-unit buildings to work with an approved fintech provider (Esusu, Jetty, and Rent Dynamics) to report consecutive, on-time payments of their residents. These positive payments reported to the credit bureaus help renters build their credit history. Missed a payment and worried it will hurt your credit? This is a positive-only initiative: under the Fannie Mae program, renters who miss a payment are automatically unenrolled to preserve their credit standing, and renters may opt out if they prefer. Ask your property manager if they participate in the program.
Fannie Mae also helps make it easier for lenders to consider your positive rent payment history even when it is not included on your credit report. Fannie Mae’s innovative technology gives mortgage lenders the ability to consider eligible first-time homebuyers’ consecutive monthly rent payments made from your bank account when underwriting an application for a home loan.
Above all, building and maintaining good credit is a vital part of securing your financial future. A strong credit score qualifies you for better interest rates on commercial and consumer loans, credit cards, and can lead to lower insurance premiums. Some employers even include credit history as part of their background checks for prospective employees, so a strong credit report might even be the difference in you landing your dream job.
For more information about credit history, managing credit, why it’s important, and starting your own credit journey, visit www.fanniemae.com/crediteducation.
How to Manage Debt
When it comes to buying your own home, managing your overall debt is crucial. Not only will reducing debt help you keep making those monthly mortgage payments, not to mention staying on top of utility bills and general upkeep, but positioning your debt relative to your gross monthly income is key when it comes time to buy a new home.
This is called debt-to-income ratio (DTI). In short, your DTI is your total monthly debt divided by your gross monthly income. Any lender that would give you a loan to buy a house is going to first look at your DTI when considering whether you are able to afford the monthly mortgage payment.
For more information about credit history, managing credit, why it’s important, and starting your own credit journey, visit www.fanniemae.com/crediteducation.
Once your rental payments are included on your credit reports they can be used to help you build your credit history and even help boost some credit scores. Better credit scores may lower the cost of financing to purchase a car, start a small business, or borrow for education. Although the credit score most commonly used by the mortgage industry today does not take into account rental payments, if your record of on-time rental payments appears on a credit report, lenders can still consider it as part of their credit evaluation while underwriting a loan. The benefit overall of having it reported is to help build a credit history that showcases an easily accessible track record of consistent, on-time payments of one of your biggest monthly expenses.