The Federal Housing Administration (FHA) announced the publication of Mortgagee Letter (ML) 2025-04, Revisions to Policies for Rental Income from Boarders of the Subject Property and a stakeholder briefing webinar. The provisions announced in this ML create greater flexibilities for borrowers using income received from individuals who rent space in borrowers’ homes to qualify for an FHA-insured mortgage. These new flexibilities include revisions to the required underwriting standards for documenting and calculating this type of income. This new underwriting guidance:
- Expands the types of acceptable income verification documentation for individuals renting space inside the home to include bank statements, canceled checks, and/or deposit slips showing rental payments received;
- Establishes that rental income from individuals renting space inside the subject property is permitted whether the borrower is currently a renter or the homeowner;
- Reduces the acceptable rental income history from two years to 12 months from individuals renting space inside the borrower’s home;
- Allows borrowers with a 12-month rental history to qualify for an FHA-insured mortgage using income from renters living in the home, provided the income has been received for at least nine of the most recent 12 months, is currently being received, and is averaged over a 12-month period; and
- Establishes that rental income from individuals renting space inside the home that is used to qualify borrowers for an FHA-insured mortgage cannot exceed 30 percent of their total monthly effective income.
- The provisions of this ML may be implemented immediately but must be implemented for FHA case numbers assigned on or after March 14, 2025. Source: FHA
