Plan includes shorter rental history requirements and additional verification options
The Federal Housing Administration (FHA) has proposed new guidelines that could allow borrowers to qualify for FHA-insured mortgages using rental income from individuals living in their homes.
The draft Mortgagee Letter (ML) outlined changes to how rental income, often referred to as "boarder income", can be documented and calculated during underwriting. FHA’s Office of Single Family Housing said the proposed changes aim to make it easier for borrowers to use boarder income as a reliable source for qualifying for a mortgage.
Under current rules, borrowers must demonstrate a two-year history of boarder income to use it for mortgage qualification. The new proposal reduces this requirement to just 12 months, making it accessible to more borrowers.
Borrowers would need to show they have received rental income for at least nine of the past 12 months, that this income is currently being received, and that it can be averaged over a 12-month period.
The proposed guidelines also introduce a cap: rental income used for mortgage qualification cannot exceed 30% of the borrower’s total monthly effective income. This measure ensures that boarder income serves as a supplementary source of funds without overshadowing the borrower’s primary income, according to the agency.
Additionally, the FHA proposes expanding the types of documentation accepted to verify rental income. Bank statements, canceled checks, and deposit slips showing rental payments would now be accepted, streamlining the verification process.
Read next: HUD proposes simpler loan applications for manufactured homes
By allowing a shorter history of boarder income and providing more flexible documentation options, the FHA aims to support first-time homebuyers and those in underserved communities.
FHA noted that the draft policy is not yet finalized and cannot be used for FHA-insured mortgages until officially adopted. Interested stakeholders, including lenders and housing advocates, are encouraged to provide feedback on the proposal by December 10. The FHA will review all submissions before publishing the final Mortgagee Letter.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
