Reduced Closing Costs for Buyers of Investment Properties

Are you buying a multi-family property to rent it out? If so, you may be able to cover your closing costs – or at least some of them.

The problem? You will need to report your tenants’ one-time rent payments.

This is all part of a new initiative announced by Freddie Mac to help tenants build up credit. If landlords are willing to report their tenants’ payments to the credit bureaus, they can get a reduction in their mortgage costs.

Here’s how it works.

Check the eligibility of your mortgage on an investment property. Start here (January 29, 2022)

How the new lending rule works

The new Freddie Mac program is only open to buyers of multifamily homes.

The company has partnered with Esusu Financial to streamline property management program reporting directly to Experian, TransUnion and Equifax – the three major credit bureaus.

Those who agree to report their tenant’s rent payments on time using Esusu’s technology will get credits for closing costs (although the exact amount of these has not been disclosed).

“This solution eliminates the administrative and compliance burden for landlords, which has been the biggest hurdle facing industry efforts to report rental data.” –Freddie Mac

To be clear, owners will still have to pay for Esusu’s reporting platform. But Freddie Mac has negotiated reduced rates for it.

Again, no exact fees have been revealed, but using Esusu’s services can help streamline the reporting process. It is also necessary to qualify for closing cost credits.

“The platform manages the end-to-end process of reporting lease payments to the three major credit bureaus while ensuring compliance with industry standards,” said Freddie Mac.

The announcement continued, “This solution removes the administrative and compliance burden for landlords, which has been the biggest hurdle facing industry efforts to report rental data.”

>Related: Investment Property Mortgage Rates — How Much More Will You Pay?

Tenants will benefit too

Freddie’s new program has far-reaching implications for tenants. As on-time rent payments are reported, it helps to boost the tenant’s credit rating.

Esusu can even report up to 24 months of past payments on time, “translating into an immediate positive impact on credit scores.”

“Right now, the most common way to report rents to credit bureaus is when there’s a missed payment that went to a collection agency,” said Alexis Sofyanos, senior director of Equity in Multifamily Housing at Freddie Mac. “Freddie Mac wants to reverse that script, so tenants who pay their rent on time and in full each month get credit for it.”

How Freddie’s Plan Helps Renters Become Homeowners

For many renters, this improved credit could open the door to home ownership or even make buying a home more affordable (ie lower interest rates).

“Rent payments are often the single largest monthly item in a family’s budget, but paying your rent on time doesn’t show up on a credit report as a mortgage payment,” said Michael DeVito, CEO of Freddie. Mac.

“This puts the 44 million renting households at a significant disadvantage when looking for financing for a home, car or even an education. of this age-old problem,” DeVito added.

Rent reporting could be the new normal

Freddie’s initiative isn’t the first to help tenants build credit and become homeowners. Fannie Mae introduced a new update to its automated underwriting system in August that integrates rent payment history into its underwriting process.

“Credit history is a key element in assessing a borrower’s ability to make a mortgage payment, but less than 5% of renters today have their rent payments listed on their credit report, putting many at a disadvantage. potential first-time home buyers,” Fannie Mae reported.

“About 20% of the U.S. population as a whole has little established credit history — a group in which black and Hispanic consumers are disproportionately represented,” Fannie Mae added.

Fannie’s Rule, however, is for tenants only – while Freddie Mac’s new Rule helps tenants and owners who buy investment properties.

Save money on your next rental property

If you’re looking for a way to lower the closing costs of your investment property purchase and help your tenants improve their financial situation, Freddie Mac’s new initiative may be an option.

It’s unclear exactly when the initiative will take effect, but if a new purchase is on your radar, be sure to talk to your loan officer and consider adding Esusu to your arsenal of tools.

Check your new rate (January 29, 2022)