A recent survey asked renters a multitude of questions in
order to get a better handle on what motivates renters to become home owners
and two matters stood out- saving enough for a down payment and credit
questions. Renters have the opportunity to check on their own credit profile
for free at a site supported by the three main credit repositories of Equifax,
Experian and TransUnion. This site is www.annualcreditreport.com. Yet
far too often renters don’t check their credit and that can keep many from home
ownership simply because there are mistakes on the report suppressing scores.
However, the biggest obstacle by far was saving money for a down payment and
As rents keep hitting record highs that also means renters
have less disposable income to put back every month in a savings account.
Mortgage lenders employ an ability to repay formula that compares gross monthly
income with housing costs. Housing costs include amounts for principal and
interest, property taxes and insurance. Lenders follow this debt-to-income
ratio as part of the loan qualifying process. However, there is no such
required ratio for rent. Instead, property managers or landlords accept a
rental application, review a credit report and even review a pay check stub but
there is no debt ratio requirement. This can mean tenants, even those with
excellent credit, can get into a rental agreement where the rent is so high
there’s very little left over each month.
Unless the renters are eligible for a VA loan or the
property is located in a rural area where a USDA mortgage could work, there
will be a down payment needed for a mortgage. Fannie Mae recently introduced
the HomeReady loan which asks for 3.0% down and the FHA loan asks for just 3.5%
down. That doesn’t sound like a lot when compared to a conventional mortgage
and a 20% down payment but if your rent takes up more than half your monthly
income that can be a barrier. Other living expenses take out the rest and then
there’s entertainment to address. There doesn’t appear to be any resolution to
this issue other than renters who do want to own a home to sign a lease
agreement that leaves a little wiggle room and some for savings.