FHA Updates – Extension and Expiration of Temporary COVID-19 Underwriting Guidance
Newrez LLC "Newrez" Approved Correspondent Clients: please note that FHA has extended the temporary COVID-19 underwriting guidance for verification of self-employment and rental income.
FHA has expired the temporary COVID-19 guidance that permitted exterior-only inspection appraisals and alternatives to re-verification of employment. Exterior-only appraisal will only be eligible for appraisals dated on or before June 30, 2021. The re-verification flexibilities for employment are only eligible for loans closed on or before June 30, 2021.
The following temporary COVID-19 underwriting guidance remains effective for applications with FHA case numbers assigned on or before September 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).
- 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 |
Expiration of Temporary Covid-19 Guidance
FHA has also confirmed the expiration of the temporary COVID-19 guidance covering Exterior-Only Appraisal scope of work (SOW) options and flexibilities in re-verification of employment prior to closing. The use of exterior-only appraisal SOW will only be eligible for appraisals dated on or before June30, 2021. The re-verification flexibilities for employment are only eligible for loans closed on or before June 30, 2021.
Please refer to the Newrez Product Profiles and Underwriting Guide for additional guidance.