FHA Update – COVID-19 Temporary Guidance for Re-verification of Self-Employment and Receipt of Rental Income
Temporary COVID-19 guidance for the re-verification of self-employment income and the validation of receipt of rental income for FHA mortgages has been updated. The changes reflect guidance that was initially issued in FHA Mortgagee Letter 2020-24 and then most recently extended in FHA Mortgagee Letter 2021-07. The implementation of this guidance previously announced by NewRez is unchanged.
The temporary requirements outlined below are now effective for FHA Case Numbers assigned on or before June 30, 2021.
Re-verification of Self Employment Income
One of the following documentation methods must be followed to verify and confirm that the borrower’s self-employed business is open and operating within ten (10) calendar days from the note date:
- evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment); or
- evidence of current business receipts (payment for services performed) within ten (10) calendar days of the note date; or
- lender certification that the business is open and operating (lender confirmed through a phone call or other means); or
- business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled).
Validating Current Receipt of Rental Income
When rental income from subject property (2-4 unit) and other real estate owned is used for qualifying purposes, one of the following conditions, for each property generating rent, is required:
- Verify the borrower has received the previous 2 months rental payments as evidenced by borrower’s bank statements showing the deposit. (This option is applicable only for borrowers with a history of rental income from the property).
- Verify six (6) months’ PITI (of rental property) reserves; or
- Reduce the effective income associated with the calculation of rental income by 25%
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Example |
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Actual rent |
$1,000.00 |
|
Rental income after 25% vacancy factor (other methods for calculating effective rental income are eligible per HB 4000.1, the 25% vacancy factor was used in this example for simplicity) |
- $250.00 |
|
Net Rental Income (Actual Rent minus vacancy factor) |
$750.00 |
|
Additional 25% reduction to net rental income ($750 x 25% = $187.50) |
- $187.50 |
|
Qualifying Net Rental Income utilized to meet this condition |
$562.50 |