Can Rental Income Be Used to Qualify for an FHA Mortgage?
April 1, 2023
The real issue is whether the rental income meets FHA loan rules found in HUD 4000.1, the FHA Single Family Lender’s Handbook. It will not matter whether rental income makes up some or all of your gross earnings, if you earn money in this way your lender must document it and ensure it is verifiable.
FHA loan rules in HUD 4000.1 addressing the rental income issue starting on page 202. That section begins, “Rental Income refers to income received or to be received from the subject Property” or “other” real estate holdings.
This addresses the borrower question about projected rental earnings.
HUD 4000.1 instructs the lender, "The Mortgagee may consider Rental Income from existing and prospective tenants if documented” according to FhA loan rules. Rental Income from the subject Property “may be considered Effective Income when the Property is a two- to four-unit dwelling,” or what the FHA describes as an acceptable one- to four-unit property.
And then there is the question of the applicant’s experience earning money in this way--how long have you been a landlord? Do you have a record of rental income? You must support this with any written documentation the lender requires such tax forms, bank statements, etc.
Those who do not have a history of being a landlord should know that the FHA loan rulebooks does include a section on reviewing applicants with no rental income history. The rules vary depending on property size.
For a single-unit property, The Mortgagee must verify and document the proposed Rental Income by obtaining a Fannie Mae Form 1004/Freddie Mac Form 70, Uniform Residential Appraisal Report; Fannie Mae Form 1007/Freddie Mac Form 1000, Single Family Comparable Rent Schedule; and Fannie Mae Form 216/Freddie Mac Form 998, Operating Income Statement, showing fair market rent” and, HUD 4000.1 adds, if available, the prospective lease.
To calculate a borrower's effective income from rental property in cases like these, HUD 4000.1 states:
"To calculate the Effective Income from the subject Property where the Borrower does not have a history of Rental Income from the subject Property since the previous tax filing” the lender is required to use the lesser of:
- The monthly operating income reported on Freddie Mac Form 998; or
- 75% of the lesser of fair market rent reported by the Appraiser; or the rent reflected in the lease or other rental agreement.
------------------------------
RELATED VIDEOS:
Do What You Can to Avoid Foreclosure
Homes Financed With FHA Loans Must Be Owner Occupied
FHA Programs for First-Time Homebuyers
FHA Loan Articles
January 22, 2025Consider this scenario: you've been in your home for five years or more and you've likely built up a significant amount of equity, and now you might be wondering how to put that equity to work for you. Whether you're dreaming of a major renovation, need to consolidate debt, or want to help a child with college tuition, you have options. Two choices are an FHA cash-out refinance and a home equity line of credit (HELOC).
January 20, 2025The FHA Streamline Refinance offers a refinance option for those who don't want to cash in on their property's equity but instead want a lower payment or interest rate or who need to get out of an adjustable-rate mortgage. This streamlined program, designed specifically for those already in an FHA-insured mortgage, simplifies the refinancing process with fewer requirements and faster approval times depending on the transaction.
January 16, 2025Want to buy a home and thinking about getting an FHA loan? FHA loans are a great way to make homeownership happen, especially if you're a first-time buyer or don't have perfect credit. But you might wonder, "Can I get more than one FHA loan?"
The short answer is, it's tricky. The FHA itself doesn't say no automatically to having more than one loan. But there's a caveat. FHA loans are about helping you buy a place to live in – your main home base. Because of this, and a few other things, getting multiple FHA loans isn't easy.
January 15, 2025Buying a condo with an FHA loan is an option some don’t consider initially, but it’s worth adding to your list of potential property types. FHA loans for condo units traditionally require condo projects to be on or added to the FHA-approved list. Still, changes in policy over the years allow borrowers to apply for FHA loans on condo units in projects not on the list on a case-by-case basis.
December 30, 2024When applying for an FHA loan, lenders will consider more than just your credit scores and history. They also look at other factors affecting your risk profile and the interest rate they offer you.
One factor is occupancy type. For FHA loans, this is straightforward because these loans require owner occupancy. Investment properties aren't eligible. While conventional loans may have different rates for primary residences, second homes, and investment properties, this isn't a concern with FHA loans.
