Americans will be able to leverage their rent payments to qualify for a mortgage under a new order from Federal Housing Finance Agency Director Bill Pulte.
Pulte, who heads the primary U.S. housing regulator that oversees Fannie Mae and Freddie Mac, posted on X on Tuesday that “credit history will no longer just include credit cards and loans.”
In recent weeks, the housing regulator has been slowly expanding ways that Americans will be able to qualify for a mortgage, even directing Fannie Mae and Freddie Mac last month to consider cryptocurrency as an asset for single-family mortgage loan risk assessments.
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Pulte ordered the government-sponsored enterprises, which play a critical role in the home financing industry, to “prepare their businesses to count cryptocurrency as an asset for a mortgage.”
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Previously, homebuyers’ credit was based solely on FICO scores, which did not consider rent payments. Now, Redfin chief economist Daryl Fairweather said credit scores may be based on Vantage Score, which uses rent as one of the variables that can impact credit scores.
In 2022, the FHA began allowing first-time homebuyers to use their positive rental payment history to help them qualify for FHA mortgages, otherwise known as government-backed mortgages.
If the housing regulator expands this to include non-FHA mortgages or even repeat buyers, Pending CEO Noel Roberts, says it would be a game-changer.
Experts believe Pulte’s latest announcement, however, is a welcome development as it would create more movement and activity in the housing industry, which has been contending with a deepening affordability crisis that has been preventing buyers from being able to jump into the market.
As of May, the typical U.S. household would need to spend 44.6% of their income to afford a median-priced home, according to recent data from Realtor.com. This is well above the recommended 30% threshold, underscoring how “affordability isn’t just strained, it’s nearly extinct,” Realtor.com economists said in the recently published report.
Realtor.com senior economist Joel Berner said the order would expand the pool of potential homebuyers and boost the housing market overall, as it would help those with “thinner credit files” enter the market.
Consumers who haven’t taken on much debt, like auto loans or credit cards, could use their rental history to help qualify for a mortgage.
“There are myriad barriers to first-time homeownership, so eliminating one of them will help more people become homeowners,” Berner said.
The only drawback, Berner said, is that people with poor rent payment history who otherwise have good credit scores wouldn’t benefit, but this is probably a very small group.
“Monthly rent payments are the primary expense for most people hoping to become homeowners today,” Berner said. “This is the payment that they budget for most intentionally and that is the closest proxy for their ability to make a monthly mortgage payment, so it is encouraging to see their financial discipline in this expense help to qualify them for a mortgage.”
He added that building equity in a home is key to long-term financial health and generational wealth. Until now, though, making monthly rent payments hasn’t worked toward helping consumers achieve this goal.
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