Becoming a first-time homebuyer is a big deal – it’s part of the American dream. It’s exciting, but also incredibly nerve-wracking. You may second guess your purchase, worry about taking on a long-term commitment, or be stressed about the financing process.
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Some may not know that your rental history may be a huge part of buying a home. With a good rental history, a homebuyer could secure a mortgage with a favorable interest rate.
Rental History
While most people are familiar with credit history reports, the concept of rental history reports isn’t as well-known. Rental history reports detail the inside scoop on the history of where you’ve lived. It will show:
- If you’ve been evicted.
- Whether you’ve been delinquent.
- Damage claims.
- Complaints against you.
- Late payments.
- If you’ve broken the rules of your lease.
What if you haven’t had any trouble during your years of renting? That means your rental history report will be clean. That’s good news for you.
When looking at whether to lend you money, a mortgage company will check your financial background thoroughly. That can also include your rental history report. It’s there that they will see if you have been a responsible tenant.
Since a lot of landlords don’t report to credit bureaus, a rental history report gives a clearer picture of how you handle your finances and your property. That’s part of the equation for a mortgage lender.
There are a lot of companies that do rental history reports, so if you want to find yours, it might be wise to ask which agency your current landlord uses. Experian RentBureau is one of the top agencies where you might expect to find your history.
How to Make Sure You Have Good Rental History
It’s not difficult to create a good rental history that will help you out for years to come. Try to:
- Abide by the terms of your lease.
- Pay early or on time.
- Watch your rental history report for errors, and work to correct any that are made.
- Be a good tenant as far as watching your relations with neighbors and keeping the noise to a minimum.
- Avoid evictions at all costs.
Impact of Rental History on Home Buying
If you’ve been evicted, it might mean you don’t know how to handle your finances. It can make a lending company understandably leery about giving you a loan.
A good report lets lenders know that you can meet monthly payments, which is a big part of being a homeowner. Plus, having a good rental history can help you get a mortgage at a lower interest rate than you might if you have a spotty rental history.
A rental history report can give you an assist while trying to buy a house, or it may even be a deal-breaker. The most recent history, though, will likely have the most influence. So, if you had an eviction years ago, but have been a model renter ever since, try not to worry too much about it.
Advice for Renters Becoming Home Buyers
Renters who think they may want to become a homeowner in the future should take steps now to prepare. Even if homeownership is years away, renters can be working toward their future by:
- Building credit: Handle any credit cards or student loans you have responsibly. Making small purchases on your credit cards and paying them off each month on time can boost your credit score.
- Saving up for a down payment: Having a sizeable down payment for a house can show a lender that you’d be a good candidate for a low-interest loan. Plus, if you put enough money down, you won’t have the added expense of a private mortgage insurance payment when you buy your home.
- Consistent income: Working toward improving your earnings is a good step to take so you can save more and be more financially secure.
By handling all aspects of your finances responsibly, you’ll be ready to ditch renting and own a home instead.
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Andy Kearns is a Content Analyst for LendEDU and works to produce personal finance content to help educate consumers across the globe. When he’s not writing, you can find Andy cheering on the new and improved Lakers, or somewhere on a beach.