Alt-tag: Signing a mortgage contract is the first step towards owning a home

Are you tired of renting? Do you feel like owning a home in California is the next step for you? Are you worried that you won't get approved for a mortgage due to your short credit history? If you have a good rent payment history, you no longer have to be concerned because we've got some fantastic news for you. Fannie Mae recently announced a new rule that will make applying for a mortgage much easier. To find out the details, continue reading. We're sure that you'll start filling out your mortgage application as soon as you've finished reading!

What rule was implemented, and how will it help buyers?

Applying for a mortgage often feels like an enormous undertaking. You have to save enough money for a down payment, obtain all necessary documentation, verify your employment status and income, and finally set a realistic budget and know how much you can afford.

Caption: The process of applying for a mortgage is complicated, and in case you have a short credit history, most likely impossible.

Alt-tag: A small notepad and a black calculator on top of several dollar bills

If you thought that was all, you were wrong. There is still your credit report that needs to be submitted. If you have a high credit score, you won't have anything to worry about. Contact several lenders and choose the best mortgage option.

However, the issue occurs when you don't have an established credit history. Even if you pay your bills on time and put enough money on the side each month, it's doesn't count for much if you don't have any credit card or other loans. It seems that being debt-free is costing your dream of buying a home in California.

This is when the new rules come to the rescue. It will ensure higher approval rates for people with limited credit history but a strong rent payment history.

How can you use your rent payment history to your advantage?

The new rule will allow lenders to automatically integrate rent payment history when they're assessing a candidate for a mortgage. Fannie Mae has even updated their system to obtain your rent history from your bank account automatically. Of course, only with your approval.

As lenders use credit history to assess risk, you probably won't get a good mortgage deal if you have a low credit score. On the other hand, people with high credit scores and longer credit histories might get better deals as they're considered lower risk.

Caption: The new Fannie Mae rule will help many get better mortgage deals based on regular and consistent rental payments.

Alt-tag: A man sitting at a desk and holding a model house in his right hand

With the new rule in place, lenders will automatically include your rent payments into the assessment process. If you have a good rent payment history, it will be advantageous for your mortgage application. In fact, as per Fannie Mae's research, around 17% percent of sampled mortgage applicants would have been given approval only if their rental payment was considered as a factor.

How will homebuyers benefit from the new rule?

First-time homebuyers with not much credit history but consistent rent payments will benefit the most from this rule. For example, let's say you never took out any loans or owned credit cards. In situations like these, your rent payment history is the only document that can show consistent and regular payments. Thus, it can help you get approved for a better mortgage deal.

Before the new rule was adopted, lenders would ask landlords to confirm their rent payment history. However, this was time-consuming and, in many cases, not accurate. Now, lenders can automatically add rent payment history to mortgage applications and avoid delays and hassle.

In the process, they'll help create opportunities for homeownership for many people who wouldn't even be considered previously. However, keep in mind that your rental payment history won't help much if you have a low credit score. But don't get desperate - you'll need to work a little bit harder towards owning a home. There are plenty of ways to raise your credit score in a relatively short time.

Applying for a mortgage using your rent payment history

In case we've inspired you to start looking for your new California home, here's how to apply for a mortgage using your rent payment history. It's very simple:

First, make sure you know how much you can afford. Setting a realistic budget is a critical step. Make sure to factor in additional costs. For instance, you'll need to hire furniture movers to help with bulky items. If you need packing help, you'll need to hire professional packers, too. The list goes on.
Make sure to get in touch with a local mortgage advisor. Let them know that you would like to include your rent payment history automatically. They should be able to help you build a credit profile and use your rent payment history to your advantage.
It's essential to get in touch with different lenders and get several offers. Taking out a mortgage isn't a decision you should rush before knowing all your options.

Caption: The new Fannie Mae rule will help many people fulfill their dream of owning a home.

Alt-tag: A happy couple standing in front of a house they've just bought and holding keys

Can you use this rule to your advantage?

But before you get in touch with a great real estate agent in California, make sure this rule applies to you. Namely, to take full advantage of it, you'll need to fulfill certain conditions:

You need to be a first-time homeowner and use the loan for a purchase transaction. This needs to be your principal residence.
Also, you would need to be renting for at least 12 months and paying a rent higher than $300 per month. Keep in mind that only reoccurring rent payments would be taken into consideration.
You need to have a credit score.

The bottom line

We hope this article helped you understand how to use the new Fanny Mae rule to your advantage. More importantly, we hope it inspired you to get in touch with your California real estate agent and start working on fulfilling your dream of owning a home. We're keeping our fingers crossed and wish you the best of luck with your first-time real estate adventure.

Meta description:

If you think owning a home is impossible due to your short credit history, find out about a new rule that will change that.

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