Freddie Mac credits on-time rent payments for first-time buyers

Homeownership is within reach for thin-credit file applicants who lack usable credit scores – especially in underserved communities.

By Jeff Lazerson | | | July 10, 2022

* Article originally posted in Orange County Register on June 30, 2022

For years, many renters have struggled to qualify for a loan, simply because their credit files did not have enough established credit.

Now, that’s about to change, creating homeownership opportunities for millions of first-time homebuyers – especially in underserved communities.

Starting on Sunday, July 10, Freddie Mac will consider on-time rent payments as part of its Loan Product Advisor, or LPA, automated loan decisioning system, the mortgage giant has announced.

Giving weight to on-time rent payments in the automated mortgage underwriting gears is brand spanking new.

“It’s a fairly big deal because rent payments aren’t credited by the credit agencies,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance. “It’s a huge hole in the credit scoring system.”

First-time buyers with little or no credit often paid sky-high rent, then were coached by mortgage loan originators to borrow, then pay off, consumer loans to generate acceptable FICO scores. It’s a little insane to take on debt to game the system.

Previously, borrowers needed a minimum middle FICO score of 620 in automated underwriting to qualify for a conventional Freddie Mac or Fannie Mae loan.

“We’re all excited about the possibility of expanding first-time buyer homeownership,” said Brad Seibel, head of mortgage at Sage. “It will probably have a much-needed boost for underserved communities.”

In a nutshell, here’s how it works.

First, applicants must be first-time buyers with a 12-month rent history. With the borrower’s permission, a mortgage broker or mortgage lender submits the borrower’s bank account data to the LPA to identify 12-months of on-time rent payments to determine eligibility.

The bank data is obtained from designated third-party service providers using the same automated process used to verify assets, income and employment.

Housing demand and inflation have resulted in many tenants getting rent hikes. The rent payment amounts made do not have to be the same for the past 12 months, so long as they were paid on time.

Eligible rent payment data include checks, electronic transactions or digital payments made through Zelle, Venmo or PayPal.

Using a third-party vendor to pull account statements directly from banks helps lenders avoid the risk of getting doctored documents, another industry executive, said.

If you are unbanked and you pay your landlord in cash or pay with a money order, Freddie Mac allows lenders to manually underwrite loan files through a verification of rent, or VOR, with the landlord. Whether you can find a mortgage lender to manually underwrite is another question.

Take a bow Freddie Mac. This is a game-changer.

Freddie Mac rate news: The 30-year fixed rate averaged 5.3%, 40 big basis points lower than last week. The 15-year fixed rate averaged 4.45%, 38 basis points lower than last week.

The Mortgage Bankers Association reported a 4.5% mortgage application decrease from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $900 less than this week’s payment of $3,594.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 5%, a 15-year conventional at 4.5%, a 30-year conventional at 5.375%, a 15-year conventional high-balance ($647,201 to $970,800) at 5.25%, a 30-year conventional high-balance at 5.75% and a 30-year jumbo purchase loan at 5.625%.

Eye catcher loan of the week: A 30-year jumbo purchase mortgage, locked for the first five years at 4.375%, with 0.75 point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or His website is

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

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Jeff Lazerson - Mortgage Columnist since 2011