While elections are still a couple of months away, some rhetoric regarding the housing market and affordability is starting to emerge.
Democratic candidate Kamala Harris has provided first insights on portions of her strategy to support current renters in their pursuit to become homeowners. Under her proposal, Harris aims to provide a $25,000 credit to first-time homebuyers, contingent on them maintaining a two-year record of on-time rent payments.
The significance of timely rent payments extends beyond renters with homeownership dreams. For landlords, prompt rent payments are vital for covering their own financial obligations, such as mortgage and tax payments. Real estate agents also have a stake in this process, as educating renters on the importance of on-time payments allows them to build lasting relationships and help pave the way for the homebuyers of tomorrow.
Historically, supporting renters to meet their rent deadlines has relied on rather manual methods, such as establishing clear lease terms, sending reminders or offering incentives like early payment discounts. More advanced approaches have emerged in recent years, such as automated payment systems and online solutions. These systems range from completely automating rent collection to simply sending payment reminders.
Another important and somewhat more recent addition are platforms that report on-time payments to credit bureaus, a growing trend that could encourage more consistent rent payments.
This shift toward viewing rent payments as part of a tenant’s overall financial profile represents a significant evolution in how renters can improve their credit standing. Rent is typically one of the largest monthly expenses, often consuming 30 to 40% of a person’s income. Yet, despite this, timely rent payments have traditionally not been counted toward a tenant’s credit history. Homeowners on the other hand benefit from mortgage payments contributing to their credit scores, giving them a financial leg up.
Recognizing this disparity and missed opportunity, institutions like Fannie Mae and Freddie Mac have recently begun to consider rent payments when evaluating borrowers’ creditworthiness. This change has opened doors for private-sector solutions, such as platforms that enable tenants to securely pay rent online while automatically reporting their payment histories to credit bureaus. These online solutions can help renters build stronger credit profiles and potentially provide opportunities not just for future homeownership but loans and car purchases, as well.
Harris’s proposal to offer a credit for first-time homebuyers who consistently pay rent on time might be a timely opportunity. But beyond individual policies, there are broader opportunities for policymakers and regulators to foster more financial fairness in the housing market. The Urban Institute found that fewer than 5% of renter households have their rental payment histories recorded by major credit bureaus, and those records are often based on missed payments. Changing the incentives to encourage rent reporting would allow renters to build credit through positive payment behavior, not just negative marks.
Another potential reform involves encouraging lenders to accept consumer-permissioned data, including rental history. Lenders are often hesitant to rely on such data due to concerns over standardization and accuracy, but clearer regulatory guidelines could help ease this uncertainty. By expanding lenders’ comfort with using rental payment histories, more households could become eligible for mortgage financing, promoting broader homeownership opportunities.
As housing affordability is a top priority, not just in this year’s election, but also long-term, solutions like Harris’s incentive program as well as systemic reforms to the way rental payments are treated could help create a more equitable housing market. Renters, landlords, agents, and policymakers all have a role to play in making homeownership more accessible to more people.
Michael Lucarelli is the CEO of RentSpree.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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