If you pay rent right now, it might help you get approved for a VA loan. In fact, it might even serve as a compensating factor for your case when the lender tries to determine whether or not you are worthy of the loan. Too many people assume that they have to have a mortgage history in order to take part in the VA program or any other mortgage program, for that matter. The truth is, that the more compensating factors you can provide the lender, the easier it is to get approved. Let’s take a look at how rent can serve as your compensating factor.
A Good Housing History
One of the most important factors in getting approved for a mortgage is a solid housing history. This does not necessarily mean that you have years and years’ worth of mortgage payments. Would that help? Yes, of course, but it is not the only way. Rent can serve as a good housing history as well. It has to be rent that is paid to a third-party, though. For example, you cannot live with your grandma and say that you pay her rent – there is a bit of crossing the lines there. A third-party is a non-interested party that can verify that you paid rent on a regular basis. This can be proven in several ways, but the most common include:
- An official Verification of Rent form completed and signed by the landlord
- Canceled checks showing the date and amount of your rent payments
- Bank statements showing the withdrawal of the rent payments from your account
These pieces of evidence are hard to argue and can serve as positive proof that you have timely rent payments.
The Amount of the Payment
Another reason that your rent payments can help you get approved for a VA loan is the amount that you pay. VA loans offer low-interest rates, which typically mean low mortgage payments. It is not too uncommon to find a mortgage payment that is lower than the rent you currently pay. That right there is a compensating factor. Let’s say your rent payment was $1,200 and you are ready to purchase a home. You find one and your lender runs the numbers. The mortgage payment including principal, interest, real estate taxes, and homeowner’s insurance comes out to $1,150. That’s a $50 savings per month – it is hard for the lender to argue that you cannot afford that payment since you were paying it all along. In addition, you have $50 more in your monthly allowance, which the VA calls your residual income. The higher your residual income, the better off your chances of getting approved becomes.
What this means is do not overlook any factor that could potentially help you get approved for a VA loan. Your rent payments might play a larger role than you ever thought possible. If you are currently renting, but know that you have late payments in your recent history, start making your payments on time. One year worth of timely payments is usually enough to establish a solid housing history. Of course, every lender is different, so you may have to work around different requirements, but there are a large variety of VA lenders available out there today and what one lender is not willing to accept, another might find perfectly okay.
Shop around for your VA loan today and stop wasting money on rent – you might find that you can become a homeowner long before you ever thought it would be possible for you!