Mortgage lenders cannot deny loans simply because borrowers can't provide rental history. The lack of rental history may be included in mortgage lender reasons for denial but cannot be the only reason. Mortgage lenders realize that mortgage history information is not always reliable as well. Mortgage lenders also typically prefer to rely on information found credit reports rather than on letters from landlords. Intentionally hiding poor rental history from a mortgage lender may be considered fraud, however, and investigated by the FBI.
Borrowers Living Rent-Free
Sometimes, hopeful homebuyers live rent-free prior to purchasing. A homebuyer may still live at home with parents while in college, for example. Perhaps the homebuyer moved in with someone already owning a home or with someone having a lease and wasn't added to that lease. Military personnel, too, often live in barracks or military housing rent-free before purchasing a home. Mortgage lenders may require an explanation letter signed by the borrower with no rental history prior to rendering an approval or denial decision.
Provision of Canceled Checks
If your landlord refuses to verify your rental history you may be able to provide the mortgage company with canceled rent checks as documentation. Mortgage lenders usually require copies of both the front and the back of canceled rent checks. Mortgage companies sometimes request canceled checks whenever the landlord is a private party and not a company. If you’re unable to provide canceled rent checks, a mortgage lender may include a failure to verify rental income as part of the reason it denied your mortgage.
Verification of Rent
Most mortgage lenders also utilize some sort of "verification of rent" form. A verification of rent from may be faxed by your hoped-for mortgage lender to your landlord or property manager, who completes it and returns it to the lender. Verification of rent forms ask landlords and property managers to certify rental history of hopeful borrowers, if applicable. Landlords and property managers must complete, sign and date a verification of rent form before returning it to the mortgage lender sending it.
Other Credit History
Many mortgage lenders use automated underwriting systems, or AUS, and they rarely ask for verification of rental income. A mortgage lender may not even request a verification of rental history if a prospective borrower’s credit profile is sufficiently strong. At any rate, a borrower's credit report may show previous rent or mortgage payment histories and a history of current debts. Mortgage lenders often find credit reports to be much more reliable than property manager or landlord-supplied rental histories.
David Rouse, currently residing in Raleigh, N.C., has been writing and teaching home owners about the mortgage industry since 1997. Rouse has written training manuals for mortgage professionals and conducted informational first-time home-buyer seminars, providing make-sense answers for a long and confusing process. He studied at Western Kentucky University.