Rent-Related Credits
Rent-related credits are parts of rent payments that can help a buyer when they’re ready to purchase a home. These credits come in two main types: Rent Credit with an Option to Purchase and Rent-Back Credit. Each type has its own rules and purposes.
Rent Credit with an Option to Purchase
This type of credit is when a portion of the rent you’ve paid is counted towards your down payment or the amount you need to contribute to the purchase of the home. Interestingly, you don’t need to use your own money for the rent payments to qualify for this credit towards the down payment. It’s important to note that this credit doesn’t count as a contribution from an interested party, like the seller or a real estate agent, who might traditionally help by reducing the sale price or offering closing cost assistance.
To figure out how much of your rent can be credited towards the down payment, you compare the market rent (what homes typically rent for in your area) to what you actually paid. If you paid more than the typical market rent, that extra amount can be credited towards your down payment. The market rent is determined by an appraiser’s assessment of the home.
Documentation Requirements
To make use of this credit, you and the lender will need to gather some paperwork:
– A copy of your rental agreement that shows it was for at least 12 months, how many months the agreement lasted, the monthly rent amount, and how much of that goes towards the down payment.
– Proof of your rent payments, like canceled checks or bank statements, that clearly show who received the payments and how much they were for.
– The home’s appraisal report, which includes the market rent.
Rent-Back Credit
A rent-back credit happens when the seller of a home pays you, the buyer, to allow them to stay in the home for a certain time after the sale closes. This type of credit is allowed as part of the sale, but it can’t be used as part of your down payment, closing costs, or financial reserves when you are qualifying for the mortgage.
This credit might show up as a credit to you on the closing statement, but when your loan is being reviewed (underwritten), this credit can’t be considered. The lender needs to see that you have enough money for the home purchase without counting this credit. This ensures you’re financially ready for the purchase without relying on the rent-back credit.
Note:
If you’re buying a home that you plan to live in as your main residence, you still need to meet any rules about living in your home that the loan requires, even if you’re receiving a rent-back credit.
Recent Related Announcements
The guidelines mentioned are part of broader policies and updates. For instance, Announcement SEL-2024-05, issued on August 07, 2024, might provide additional context or information related to rent-related credits.
References
For more details, visit Rent-Related Credits of the Fannie Mae Selling Guide.