For forward Federal Housing Administration (FHA) insured purchase mortgage loans made to first-time homebuyers, the U.S. Department of Housing and Urban Development (HUD) recently announced in Mortgagee Letter 2022-17 the consideration of positive rental history in FHA’s Technology Open to Approved Lenders (TOTAL) Mortgage Scorecard. Positive rental history may be considered in TOTAL scoring events that occur on or after October 30, 2022, for loans with case numbers assigned on or after September 20, 2021.
A first-time homebuyer is an individual who has not held an ownership interest in another property in the three years prior to the case number assignment. An individual who is divorced or legally separated and had no ownership interest in a principal residence, other than a joint ownership interest with a spouse, during the three years prior to the case number assignment is considered a first-time homebuyer. A positive rental history is on time payment by a borrower of all rental payments in the previous 12 months, with rental payments being made in the month in which they were due being considered on time.
The following conditions must be satisfied in order to submit positive rental payment history to the TOTAL Mortgage Scorecard:
• The transaction is a purchase transaction;
• At least one borrower is identified as a first-time homebuyer;
• The minimum decision credit score is at least 620; and
• At least one borrower has a documented positive rental payment history with monthly payments of $300 or more for the previous 12 months.
To verify the borrower’s rental payment history, a lender must obtain a copy of the executed rental or lease agreement, and any one of the following:
• Written verification of rent from a landlord with no identity of interest with the borrower;
• 12 months canceled rent checks;
• 12 months bank or payment service statements documenting rents paid; or
• Landlord reference from a rental management company.
For borrowers renting from a family member, a copy of the executed rental or lease agreement and 12 months canceled checks or bank statements are required to demonstrate satisfactory rental payment history.
FHA Connection and the TOTAL Mortgage Scorecard have been updated with an indicator that lenders may use when a positive rental payment history has been documented and submitted for one of the borrowers.
FHA Commissioner Julia Gordon stated “[w]e 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 homebuyers.” HUD Deputy Assistant Secretary for Single Family Housing Julienne Joseph added “[t]his change makes FHA requirements more flexible and can help remove barriers to homeownership, particularly for those with non-traditional credit or thin credit files.”