Verification Of Rent Guidelines on Manual Underwrites
In this article, we will be covering the verification of rent guidelines on manual underwrites. FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. Generally, one of the mandatory requirements on all manual underwriting is rental rent is required.
Gustan Cho Associates can waive the rental verification requirement on manual underwrites if the borrower is living rent-rent free with family. A living rent-free form provided by the lender needs to be completed by the family member who is the owner of the property where the borrower is living rent-free.
How Can VOR Be Documented and Used For Lender?
Rental verification also referred to as VOR, can be proven if a renter can provide 12 months of on-time canceled checks and/or bank statements.
The past 12 months of canceled checks and/or bank statements need to be on time with no late payments.
This proves the renter has been timely with their housing payments for the past twelve months. Cash-paid receipts do not count. Only canceled bank checks, bank statements, or a letter from a registered property management company are valid sources allowed.
Understanding VOR For Homebuyers
Many folks think VOR can be proved and verified by just turning in a cash receipt by the landlord. This is not the case. Cash-receipt from the landlord cannot be used to document VOR. We will cover how rental verification is verified and what type of documents is required to validate the rental verification. In this article we will discuss the following topics:
- The importance of rental verification
- Why verification of rent is mandatory on manual underwriting.
- Why verification of rent is the most important form of compensating factor.
Gustan Cho Associates will exempt rental verification for borrowers who have been living with family rent-free in order to save money to purchase a home.
VA And FHA Guidelines on Rental Verification
VA Home Loans and FHA Loans allow manual underwriting on files that cannot get an approve/eligible per Automated Underwriting Findings. Mortgage borrowers who need manual underwriting loans need to realize that rental verification is required on manual underwrites. VA and FHA have guidelines on manual underwrites:
What Is Compensating Factor For Mortgage?
Verification of rent, also referred to as VOR, is one of the most important compensating factors when it comes to qualifying for a mortgage. Rental verification, also known as VOR, is proof of rental payments for the past 12 months. The only way to prove it is by providing a mortgage lender 12 months of canceled checks and/or bank statements to a private landlord.
Does Paying Rent Late Affect Your Rental Payment History?
One missed rental payment without a check will void the rental verification. Renters renting a rental unit from a registered property management company can get a VOR letter provided by the lender completed and signed by the property manager. The VOR Form needs to state renter has been timely on rental payment for the past 12 months.
Does Renting From Property Management Company Count as VOR?
Renters renting from registered property management companies do not have to provide 12 months of canceled checks and/or bank statements. In the following paragraphs, we will discuss and cover the Verification Of Rent Guidelines on Manual Underwrites Guidelines.
Why Is VOR Required On Manual Underwrites?
Verification of rent on manual underwrites is mandatory. Those who cannot provide VOR will not qualify for manual underwriting.
If a mortgage lender is requiring rental verification, VOR, from a mortgage loan applicant who is living with family or rent-free, it can create major issues in getting a mortgage loan approval. There are exemptions.
Gustan Cho Associates WILL ACCEPT borrowers who are living rent-free with family members if the family member can complete, date and sign a living rent-free form provided by the lender.
Why Is Rental Verification Important For Mortgage Lenders
Reason verification of rent is so important for lenders. Rental verification determines payment shock. For example, if a renter pays $1,000 per month and the new proposed mortgage payment with property taxes and insurance is $1,200, the rental shock is 20%. The lower the payment shock the better compensating factor it is.
Why Is Rental Verification Necessary on Manual Underwriting?
Lenders will feel comfortable seeing a renter who has had a history of paying $1,000 rent in the past 12 months being able to pay a $50 increase or no increase on a new housing payment.
Lenders want to see if the borrower had a history of paying a housing payment so the adjustment to paying their new mortgage payment is not a payment shock.
If a renter goes from paying zero a month because living rent-free and the new home purchase mortgage payment is $1,200 per month, that would be considered a high payment shock.
What Documents Do You Need Verification Of Rent To Be Valid
There are so many renters who deserve to have verification of rent credit. Unfortunately cannot use verification of rent because they have been paying their monthly rent with cash instead of a bank check. Renters renting from a private landlord need 12 months of canceled checks and/or bank statements in order to provide proof of verification of rent with no late payments in the past 12 months.
Will Cash Payments Disqualify a Valid Verification of Rent?
Cash payment or one missed payment without a check will disqualify the verification of rent. Unfortunately, many renters who pay their landlords with cash and get a cash-paid receipt will not be able to use this as a verification of rent.
For renters renting a home or apartment from a property management company registered and licensed by the state, a VOR Form is provided by the mortgage company.
The VOR form is completed and signed by the property management homeowner association manager. The VOR Form completed, dated, and signed by the property management company can be used in lieu of the 12 months’ canceled checks.
Do All Lenders Ask For Rental Verification On Manual Underwrites
Verification of rent may be required by mortgage applicants with certain lenders as part of their lender overlays even if the Automated Underwriting System (AUS) does not require it. However, most lenders will require rental verification for certain applicants. Borrowers with solid credit, good income, great credit history, solid employment history, and reserves, then the chances are that rental verification will not be required.
When Can Mortgage Underwriters Ask For Rental Verification
If credit scores are lower than 620, have outstanding collections, limited credit tradelines, short credit history, high debt to income ratios, and derogatory credit, then mortgage underwriters may require rental verification.
Just because one lender requires rental verification does not mean another mortgage lender will require it.
Borrowers who are being requested VOR by an underwriter when AUS is not conditioning it please contact us at Gustan Cho Associates. Gustan Cho Associates has zero overlays on government and conventional loans. If AUS does not require it, neither do we.
Cases Where Manual Underwriting Is Required
In cases where borrowers cannot get approve/eligible per DU FINDINGS or LP FINDINGS and get a referred/eligible per FINDINGS, the file can still get approved via manual underwriting. Manual underwriting is when borrowers can qualify for VA Loans and/or FHA Loans but not through the Automated Underwriting System.
Almost all manual underwrites require rental verification, VOR. There may be a lender or two that will not require a rental verification.
However, strong compensating factors will be required such as high credit scores, larger down payments, and strong reserves. There cannot be any late payments in the past 12 months on manual underwrites. No late payments after bankruptcy and/or foreclosure unless the borrower has strong compensating factors.
FHA and VA Loans During And After Chapter 13 Bankruptcy Discharge
Home Buyers can qualify for both FHA and VA Home Loans during Chapter 13 Bankruptcy Repayment Plan with Trustee Approval. Most Chapter 13 Bankruptcy will approve a home purchase during the Chapter 13 Bankruptcy repayment plan. There is no waiting period after the Chapter 13 Bankruptcy discharge date to qualify for VA Loans and FHA Loans.
When Is Manual Underwriting Required After Chapter 13 Bankruptcy on FHA and VA Loans?
Any Chapter 13 Bankruptcy with less than two years seasoning from the discharged date on VA and FHA Loans is manual underwriting, Manual Underwriting Guidelines apply.
Frequently Asked Questions (FAQs)
- What are Verification of Rent (VOR) Guidelines in manual underwrites?
Verification of Rent (VOR) Guidelines in manual underwrites entail verifying a borrower’s rental payment history as part of the mortgage approval process. - Why are VOR Guidelines important in manual underwrites?
VOR Guidelines are crucial as they provide lenders insight into a borrower’s ability to manage housing expenses and fulfill financial obligations. - How is VOR typically verified in manual underwrites?
VOR is often confirmed through documentation such as canceled rent checks, bank statements showing rental payments, or direct verification from the landlord. - What if a borrower doesn’t have a traditional rental history for VOR verification?
In cases where traditional rental history is unavailable, alternative documentation or non-traditional rental arrangements may be considered for VOR verification. - Do lenders have specific requirements for VOR Guidelines in manual underwrites?
Yes, lenders may have specific requirements regarding the duration of rental history, the format of documentation, and acceptable sources for VOR verification. - How does VOR verification impact the mortgage approval process?
VOR verification provides lenders with additional insight into a borrower’s creditworthiness and may influence the terms of the mortgage offer. - Can VOR Guidelines affect the interest rate or loan terms?
A positive VOR verification demonstrating consistent rental payments may result in more favorable interest rates or loan terms for the borrower. - Are there exceptions to VOR Guidelines in manual underwrites?
Lenders may make exceptions to VOR Guidelines based on individual circumstances, such as recent changes in housing status or non-traditional rental arrangements. - What should borrowers do to prepare for VOR verification in manual underwrites?
Borrowers should gather relevant documentation, maintain a consistent rental payment history, and communicate unique circumstances to their lenders. - Can borrowers seek assistance from a mortgage broker or financial advisor regarding VOR Guidelines?
Yes, borrowers can consult with mortgage brokers or financial advisors to understand VOR Guidelines, gather necessary documentation, and navigate the manual underwriting process effectively.
Borrowers who need to qualify for FHA Loans or VA Loans during and after the Chapter 13 Bankruptcy discharge date, please contact us at Gustan Cho Associates at 800-900-8569. Or text us for a faster response. Or email gcho@gustancho.com. The Team at Gustan Cho Associates, Inc. are experts in manual underwriting. We have zero overlays on FHA, VA, USDA, and Conventional Loans.
