Verification of Rent on Manual Underwriting Mortgage Loans
This article is about the Verification of Rent on manual underwriting required by lenders. Verification of rent is one of the most important items borrowers can provide a residential mortgage lender to qualify for home loans even though rental payment history does not report on the three big credit bureaus.
Verification of rent provides probably the most weight:
- VOR with low payment shock is a compensating factor.
- VOR proves borrowers can handle new mortgage payments from a renter to a home buyer.
- Verification of rent on manual underwriting is required on all manual underwriting on FHA and VA loans.
What Is Payment Shock
Payment shock is the difference in the amount a renter pays to the proposed new mortgage payment. For example, here is a case scenario. If the renter is currently paying $1,000 in monthly rent. Have been timely for the past 12 months with no late payments on rent. The new mortgage payment is $1,000 or slightly more.
Payment shock the increase from the existing housing payment to the new housing payment. If renter is paying $1,000 per month rent and the new mortgage payment is $1,300 per month, the payment shock is 30%.
This proves to the underwriter that they can manage new mortgage payments without problems. If the renter is currently paying $1,000 monthly rent and the new mortgage payment will be $1,500, the new payment will have a 50% payment shock. Payment shock is the percentage of the increase from the current rent to the new monthly mortgage payment. Mortgage underwriters consider rental shock factors.
Mechanics of Verification of Rent on Manual Underwriting
Verification of Rent is not required many times, but providing VOR shows a lot of weight, and verification of rent on manual underwriting is mandatory. All borrower’s mortgage files need to go through the Automated Underwriting System.
Many times when a borrower has credit scores under 620 or a lot of collection accounts, the AUS will require VOR. If AUS renders a referred/eligible, it needs to be downgraded to a manual underwrite.
Verification of rent on manual underwriting is mandatory. Borrowers who cannot provide it cannot qualify for a mortgage loan. Many renters pay their rent on time to their landlords monthly with cash. They get a rental-paid receipt from their landlords with cash payments.
Cash and Undocumented Rental Payments
Unfortunately, although the renter makes timely payments to their landlords, cash payments to landlords cannot be used as proof of verification of rent. Cash rental payments cannot count. It needs to be canceled check or auto payment from bank account to count for verification of rent:
Even though a renter can get rental receipts that the rent has been paid with cash, cash is non-existent in the mortgage industry.
For renters renting an apartment or home from a private landlord and not a property management company, the only way verification of rent can be used is by providing the underwriter with 12 months of canceled checks or bank statements paid to the landlord. One or two cash payments during the 12 months will disqualify the verification of rent.
Make Sure Rental Payments Is Paid With a Check or Bank Wire
Make sure that if making monthly rental payments, make it with a check payable to the landlord.
For renters renting a home or apartment from a registered, licensed property management company, VOR Form provided by the lender can be completed and signed property manager instead of canceled checks or bank statements.
Renters can pay monthly rent with cash to the property management company as long as the property management company is a registered, licensed property management company. VOR Form stating that the renter has been making monthly payments on time for the past twelve months is sufficient.
Verification of Rent on Manual Underwriting With Irregular Monthly Rent Payments
Mortgage underwriters want to see the renter’s lease agreement and will review the lease agreement. Most lease agreements are standard. It requires the renter to pay a security deposit, the monthly rent amount, and the terms. Mortgage underwriters will want to see a consistent set monthly rent amount for every month for the past 12 months. What happens if the borrower has paid lower than the rent amount for one or more months due to extenuating circumstances?
If the renter has not paid a steady fixed rate every month for rent, then the underwriter will want to see why and a letter of explanation is required. This scenario is often common where the landlord may allow the tenant to do minor repairs on the home they are renting and deduct it from their rent payment.
Unfortunately, underwriters will see this as a red flag and require the borrower’s proof showing that the reason for the reduced rent for a particular month was due to repairs. Receipts and, possibly, a letter from the landlord will also be required.
Qualifying For a Mortgage With Lender With No Overlays
Home Buyers who need to qualify for a mortgage with a national mortgage lender with no mortgage overlays on government and conventional loans can contact us at Non-QM Mortgage Brokers at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. The team at Non-QM Mortgage Brokers are experts in manual underwriting and has zero overlays on FHA, VA, USDA, and Conventional loans.
