Home loans and account history

[Volpes]

I was talking to someone about what banks look at to decide if you qualify. Two things that struck at me:

They’ll want to see that you’ve had accounts open for at least a year

I have some credit cards I will be closing. Two of theme are less than a year old (currently), but one has a monthly fee of $6. I do not owe anything on these two, and they feel pretty useless with a $300 limit. Is it a good idea to wait till they age 1 year then close theme?

Lenders want to see if you’ve had any late rent or mortgage payments in the past 12 months. 

How would they check this, since its not on your credit report? In the past 1.5 years I have not had a rental contract, so will this affect me? I do pay $200 a month where I live, but its cash. Don't laugh, I live in a garage.. not as bad as it sounds, because I have a small fridge, microwave, toaster oven, fan, my laptop with free wi-fi internet, and window air-conditioning. It SUCKS, but paying $600 month for rent + utilities will take me even longer to save for that 20%/30% downpayment. Essentially this looks like I live rent free, is that a bad thing?

Anything else I should prepare for, besides the obvious (credit score, employment history, etc..)? This will be my first mortgage.

[Anonymous]

I would think you could just provide the name of the homeowner and they'd call to verify your rental history. Assuming you have bills sent there I don't see what the problem would be.

[Volpes]

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@Anonymous wrote:

I would think you could just provide the name of the homeowner and they'd call to verify your rental history. Assuming you have bills sent there I don't see what the problem would be.

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I'm under the assumption that bank lenders do not take "word of mouth". How exactly will they "verify" the rental history?

[Anonymous]

I'm guessing by calling the homeowner? At most they'll know who owns the place through tax records though you could get anyone to pretend on the phone.  Why not just get the person to make a quick lease for you and postdate it?  I know even with contractual lease agreements they sometimes call.

[StartingOver10]

In our area, S Florida, the lenders will do rent verifications.

Most lenders want to 1) see a lease and 2) see canceled checks from the tenant to the landlord with on time payments for the past 12 months.

If you plan to apply for a mortgage find out what is customary in your market for proof of timely rent payments.

The lenders used to accept VOR's (verification of rent) letter's from private landlords but not any longer. I believe it is a little more strict here because our area is especially prone to mortgage fraud  and has a lot of foreclosures. Unfortunately our area (S Fl) is number one for mortgage fraud according to an FBI report last year.

OP, because you do not pay rent, you may run into an issue referred to as "payment shock". This is when a buyer either goes from zero rent to a mortgage payment or has a substantial increase in their mortgage payment. Ask your lender what the threshold is for payment shock.

[Booner72]

I didn't have to provide rental verification.  I think it's the automated underwriting system that determines if it is required or not.  I'm surprised we didn't, as was the LO - but she thought it was bc there was nothing on our reports related to rental problems.  We had tons of collections, a judgment and a BK, so it really was crazy we didn't have to provide this.

Regardless, once we knew almost for sure we'd be approved, she was going to send a rental verification letter on the FHA form (Maybe the lender's form) to our landlord to complete this.  She never said anything about having to show canceled checks - though they had our bank account statements so they could see the rent coming out each month.

Just be honest and up front about all of this, and if you can show in your bank statements that 200 came out on the 1st for rent, this might work.

I'm sure you are not the only person who has a situation like this - what about people that live with their family to save for a house?  (See this all the time on HGTV).

IMO, if everything else is in good standing, it might compensate for this area.

Maybe you should do some calling around to various lenders and see what they say.  I recommend you interview 3-5 lenders before you get in bed with one anyway.  See what they know.  I guarantee you that bc you are a forum membere here, you will know more about credit than they do....but they know more about the mortgage process than you know.....Write down questions and set things up.

Good Luck!!

ETA:  DO NOT CANCEL THAT CREDIT CARD.  If that's your only revolving account, you need it to be open and active.  Just don't use it and pay the six bucks a month til you get your house.

[Volpes]

Thanks for the replies.

Its a bit odd, because the person I rent from I know personally, I have personal reasons I do not want her to know where I live.

In the end, I suppose I could rent an apartment for a year? I will be able to save up a little extra money, practice house budgeting , eat healthier like I use too.

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@Booner72 wrote:
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ETA:  DO NOT CANCEL THAT CREDIT CARD.  If that's your only revolving account, you need it to be open and active.  Just don't use it and pay the six bucks a month til you get your house.

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Oh I think I understand what you are saying, but these particular cards feel useless. One charges a monthly fee, another charges an annual fee (with no benefits), stingy credit limit increases, always trying to sell me some service when I log into my online account... I was wondering if it was bad to close a credit card before it aged 1 year.

My goal is to close some credit cards, but I will keep my "good" ones open (USAA Mastercard, USAA American Express, Kohls store card). Maybe open up a nice 4th card.