What Is Verification of Rent For Mortgage
This guide covers what is verification of rent required for a mortgage. Borrowers must have made all rental payments for the past 12 months timely—no 30-day late payments with any rental payments. If the borrower has paid their rental payments online, then 12 months of bank statements will be required to validate the verification of rent, showing the exact rent payment leaving the bank account. The landlord also needs to complete a form of rental verification. The mortgage lender will provide a VOR form. If a borrower lives rent-free with a family member and does not have rental verification, we will exempt the verification of rent requirement.
What Is the Payment Shock of Going From Being a Renter To a Homeowner
The importance of verifying rent is due to determining payment shock. Payment shock is the proposed new mortgage payment a home buyer will have compared to the monthly rental payments they have been paying. There is zero payment shock if the renter pays $1,000 monthly rent and the new P.I.T.I. (principal, interest, taxes, insurance) is $1,000. This is because the new mortgage payment is the same as the rental payment the borrower has been making.
Why Underwriters View Low Payment Shock As a Compensating Factor
If the new proposed housing payment is $1,200 monthly and the old rental payments are $1,000 monthly, the home buyer will have a $200% payment shock or 20%. If the home buyer has been renting and has been paying timely rental payments but was paying with cash, that will not count as verification of rent.
Renters should always pay their rental payments with checks or online to show documentation.
For renters renting from a property management company, bank statements, and canceled checks are not required. A verification of rent form provided by the lender and completed and signed by the property management company manager will be sufficient instead of 12 months of canceled checks or bank statements.
Eligibility of FHA and VA Manual Underwriting
To be eligible for FHA and VA manual underwriting, borrowers must have made timely payments in the past 12 months. FHA and VA Manual Underwriting Guidelines Verification of rent will require borrowers to verify rent. Verification of rent is only valid if borrowers can provide the underwriter with 12 months of canceled checks or 12 months of bank statements.
