B3-4.3-12, Rent-Related Credits (08/07/2024)

Rent credit with an option to purchase is the portion of rental payments (also referred to as lease payments) paid by the borrower that can be credited towards the down payment or minimum borrower contribution under a documented rental or purchase agreement. Borrowers are not required to make a minimum borrower contribution from their own funds for the rental payments to be credited toward the down payment. The rent credit is not considered an interested party contribution.

The rent credit from the seller for the down payment is determined by calculating the difference between the market rent and the actual rent paid by the borrower. The market rent is determined by the appraiser in the appraisal for the subject property and the credit may be no more than the difference between the market rent and the actual rent paid.

Documentation Requirements

The lender must obtain the following documentation:

• A copy of the rental/lease with an option to purchase agreement that evidences the following:
  • an original term of at least 12 months, 
  • the total number of months of the agreement, 
  • the monthly rental amount, and 
  • the amount of the monthly rent credit.
• Copies of the borrower's canceled checks, bank statements, money order receipts or other reasonable methods evidencing the rental payments over the term of the agreement. The documentation must clearly indicate the payee and the amount being paid.
• The appraisal of the subject property reflecting the market rent amount.

A rent-back credit is an amount paid by the property seller to the borrower in exchange for allowing the seller to stay in the home for a specified period of time after closing. While rent-back credit to the borrower paid by the seller is permissible as part of the sale; it cannot be used as an eligible source of funds for closing costs, down payment, or reserves when qualifying the borrower.

A rent-back credit may appear on the Closing Disclosure as a credit to the borrower. In all cases, the lender must underwrite the loan without any consideration of the rent-back credit (e.g., it must not be entered in the DU loan application data) and must document that the borrower has sufficient funds for the transaction from eligible sources.

Note: For loans secured by the borrower's principal residence, the borrower must continue to meet any occupancy requirements as outlined in the security instrument.