Rent History Now Counts Towards Mortgages

Dreaming of owning a home but struggling with a traditional credit score? Good news! A major federal policy update is making it easier for millions of Americans to qualify for a mortgage by finally recognizing the value of their rent payments.

A New Era for Mortgage Eligibility

Government-run mortgage giants Fannie Mae and Freddie Mac are now incorporating on-time rent and utility payments into their lending decisions. This move signals a departure from rigid, outdated systems that often overlooked individuals with strong payment histories but limited traditional credit footprints. This change is poised to unlock hundreds of billions in new mortgage opportunities for those who have the financial means but lacked the right documentation.

The update is part of a broader push by the U.S. Federal Housing Finance Agency (FHFA) to modernize financial practices. FHFA Director William Pulte has championed this change, arguing that just as late payments negatively impact credit, consistent on-time payments should positively influence it. This common-sense approach acknowledges that payment habits are strong indicators of future mortgage responsibility.

Opening Doors for ‘Credit Invisible’ Americans

This policy shift is a game-changer for the estimated 7.7 million Americans, including freelancers, gig workers, and young adults, who often have “thin” credit files. These individuals may be financially capable of homeownership but fall through the cracks of the current system. Experts like Jake Krimmel, senior economist at Realtor.com, note that these borrowers are “probably qualified as a whole, but not on paper under the current rigid, outdated system.”

The new models, which track trended data and utilize updated scoring systems like VantageScore and FICO, can potentially boost scores by nearly 70 points. This could be enough to push many borrowers past the crucial 620 threshold required for conventional loans. Bob Johnson, head of originations at Newrez, highlighted that this provides a “more holistic view” of a borrower without slowing down the lending process.

A Step Towards Financial Inclusion

While this move represents a significant victory for financial inclusion, industry leaders caution that credit scores are just one factor. High interest rates and a competitive housing market mean the broader economic landscape still plays a critical role. As Krimmel pointed out, “policies expanding the credit pool are only as sound as the labor market supporting it.”

Nevertheless, for millions of renters, this policy change is a monumental first step toward transforming their monthly rent payments into a pathway to building long-term wealth through homeownership. It’s a promising development in making the dream of owning a home a reality for more people.