Advantages Of Fannie Mae’s New Underwriting System

For renters to become homeowners a good credit score is very important but not everybody is able to establish a solid credit report as many consumers do not use credit cards or loans leading to a limited credit report for lenders to review.

An applicant’s rent payment history is considered as part of a mortgage lender’s decision. Because when you consistently pay for your housing on time as a renter then the possibility of paying your mortgage on time is very high. 

The issue being, some landlords provide rent payment history to the credit reporting bureaus, and unless the lenders they could not include rent because they opted for a manual credit review.

From Sept. 18, in its automated underwriting system, Fannie Mae will start with a new feature that will incorporate rent payments with the consent of the loan applicant. 

The chief credit officer of Evolve Mortgage Services in Jacksonville, Joseph Mayhew, along with the operations director of Inlanta Mortgage in Milwaukee, Andrea Puricelli, explained how this new system will affect home buyers.

In regards to the difference, this new Fannie Mae policy will make for potential buyers

Mayhew felt that the policy will remove huge hurdles for would-be borrowers who have been overlooked by the traditional mortgage and banking system. 

When thinking of responsible use of credit, he added that mortgage companies look at the borrower’s various forms of debt and timely repayments.

He says the absence of a credit profile doesn’t make a borrower a credit risk because some people like those in extremely rural areas don’t need to borrow money, so they have a shallow, or a nonexistent, credit profile. 

Similarly, some cultures and religious members avoid taking loans from banks and prefer to engage in community lending.

So with an on-time rental history to amplify traditional credit report data, millions of borrowers are ready for homeownership by showing that they are just as creditworthy as those who use credit more traditionally.

Puricelli felt that this could be ideal for renters who make payments on time. 

This initiative of Fannie Mae will help improve the number of borrowers and in turn, will increase the number of prospective home buyers to get approved under Fannie Mae’s guidelines through their Automated Underwriting Assessment engine.

Will this program increase first-time buyer demand for loans?

Mayhew said this policy will definitely increase the first-time buyer demand for loans but with very few listings on the market, it is making the housing market extremely competitive.

Puricelli feels that first-time homebuyers should seek help from an experienced loan originator to guide them with the mortgage lending processes and ensure they receive the right loan product to meet their home-financing needs.

Tips to renters who can qualify for a loan?

Mayhew suggests people save as a new house means money for a down payment, home inspections, closing costs, and many others. 

Buying a home does not involve the cost of getting into the home, but other small expenses while getting a home. Have the money for the down payment and closing costs into just bank accounts at least 2 months before applying for a mortgage. 

The lender will scrutinize and ask about every large transaction. So not to move money constantly between several different accounts which will make it more difficult.

Puricelli advises making timely rent payments. The rent should be paid from his bank account and not through a credit card. 

She again stresses an experienced mortgage originator who can help with available lending options best suited for your financial situation and to assist you in identifying loan programs to make home-buying more attainable and much easier.