The Importance of Paying Your Rent by Check

Many potential homeowners make a huge mistake by paying their monthly rental payment to their landlord in cash. Why is this a mistake?

Many lenders will require 12 months cancelled checks to verify timely rent payments. If you only pay your rent with cash there will be no way to document a rent payment history. Some lenders will accept a VOR or Verification Of Rent that is filled out by your landlord. A VOR is basically a written rent history statement endorsed by the landlord.

Fannie Mae loans and FHA loans will accept a Verification of Rent(VOR) filled out by your landlord. Many other loans do not allow for VOR's. By having cancelled checks, you do not have to notify your landlord in advance of your intention to move due to having a VOR request done by a lender.

When paying your rent by check you also want to make sure that your landlord is cashing your checks when you give the landlord your check. When you need to use 12 months worth of cancelled checks to verify your rental payment history, not only will the underwriter look at when the check was dated, but he/she will also need to see the backside of the check to see when the check went through the bank. Anyone can date a check whatever date they want to on the front of a check and this won't prove that their payment was made on time. However, the back of the check will prove whether the payment was made on time or not. Therefore, if you have a landlord who does not cash your checks immediately, this could reflect poorly to demonstrate a good payment history and can possibly cause some problems with verifying your rent payments.

In some situations, lender can even count a 12 month rental history documented with cancelled checks as one of the qualifying tradelines. This is extremely important for borrowers with a thin credit profile or limited tradelines.

Having a paper trail to document that rent is being paid is important in getting purchasing a property that you have been renting. If you have been paying cash, then providing 12 months of bank statements of the seller showing that payments have being deposited along with a letter explaining the situation can suffice.

A lender may request a verification of rent (VOR) during your loan application process. Paying your rent by check will provide a paper trail for the lender and satisfy this lending requirement.

If you live at home or with a relative, there are options for you as well. Most lenders will accept a "Rent free" letter. This is a verification form signed by the person in whose house you currently reside. In many cases, this satisfies the lender's requirement for a rental history. This is an option many first time homebuyers employ.

A paper trail of your rent payments can qualify as a tradeline and be seen upon as "good credit" toward making monthly obligation living payments. Most lenders require 12 months of cancelled checks or a private VOR signed by a landlord or a management company.

» DISCLAIMER: The information contained in this article on 'The Importance of Paying Your Rent by Check' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.