I Federal Housing Administration (FHA) on Wednesday issued a proposed Mortgage Letter (ML) that would add flexibility for renters to “residents” paying for an existing residence when considering an FHA-insured mortgage.
Borrowers who receive rent from “occupiers,” a term that refers to “people who rent property in borrowers’ homes” according to the Single Family Housing 4000.1 Handbook, may have strict underwriting and reporting requirements for this type of income when applying for a new one. FHA-insured loan, according to the proposal.
“FHA remains committed to expanding affordable housing opportunities in its core area of first-time and low-to-moderate income homebuyers, including those in underserved communities,” the agency said in its proposal announcement. “In doing so, it recognizes that the rental income earned by people renting property in borrowers’ homes is a stable and viable source of income that increases housing affordability and allows borrowers to better control housing costs.”
The first two parts of the proposal include reducing the “acceptable rental history” from 24 months to 12 months for residents’ income; and an allowance for borrowers with a 12-month rental history to qualify for an FHA-insured loan, “as long as the income has been received for at least nine of the most recent 12 months, is currently earned, and averaged over 12 – month. “
The proposal would also state that the rental income from residents used in the qualifying decision “cannot exceed 30% of their gross monthly effective income; and ML will also expand acceptable income verification documents for residents to “include bank statements, canceled checks, and/or deposit slips showing rental payments received.”
The proposed ML is now available for review at the Single Family Drafting Table, an online portal where the proposal is made. US Department of Housing and Urban Development (HUD) single-family policies may be revised before they take full effect.
The agency encourages all stakeholders to carefully review the proposed document and provide feedback, which can be done by Dec. 10.
Depending on the amount of feedback received, HUD will have a limited amount of time to implement the proposal if current Biden leaders plan to see it through. The current president’s term ends at noon EST on Jan. 20, when President-elect Donald Trump will be administered the Oath of Office by Chief Justice John Roberts.
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