FHA Rental Income may be used to qualify for a new mortgage insured by the Federal Housing Administration. However, there are restrictions in using the income from a property that the borrower has so far been using as a primary residency and is now being vacated solely for the purpose of qualifying under FHA rental income guidelines. Exceptions to this rule exist subject to the appropriate vacancy factor as determined by the jurisdictional Homeownership Center.
The possible situations under which these exceptions might work include relocation to a new area not within reasonable and locally recognized commuting distance, and the situation when the homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
FHA Rental Income Guidelines
A borrower can use the rent received from the properties he/she owns to qualify for an FHA loan. However the lender is responsible to establish the stability of such income. Indeed the source of income does not matter as much as the steadiness of the same does.
To ensure this, a lender should examine a current lease, an agreement to lease and at least two years’ rental history. There must not be unexplainable gaps of more than three months in the rental history. If all properties are shown on URLA, a separate schedule of real estate is not needed as per the FHA rental income guidelines.
For a multiple-unit property, such as a condominium, the rental cap guidelines necessitate the deduction of HOC’s vacancy and maintenance factor from the projected rent of the units that are owned by the borrower but are not used by them for dwelling. The percentage of vacancy rate is 15 in Santa, Philadelphia and Atlanta HOC. Denver HOC may have a vacancy rate of 10, 15 and 20 percent depending on the jurisdictions it serves.
FHA rental income calculation should not use the rent paid by a roommate who lives in the borrower’s primary residence. However, the income from boarders is acceptable if it can be established that they are related by blood, marriage, or law.
Moreover, if the rent can be shown on the borrower’s tax returns, it may be considered effective income. Otherwise, it will be considered only a compensating factor. The lender should document adequately on this aspect. Some other requirements to verify the rental income include a Schedule E of IRS Form 1040 and current leases.
For more information, refer to HUD Handbook 4155.1: 4.E.4.a-f or explore the resources made available by the US Department of Housing and Urban Development on its website fhaoutreach.gov.
Website: www.hud.gov
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