The FHA mortgage lender may consider Rental Income from existing and prospective tenants if documented in
accordance with the following requirements. Rental Income from the subject Property may be
considered Effective Income when the Property is a two- to four-unit dwelling or an acceptable one- to
four-unit Investment Property.
Rent received for properties owned by the FHA mortgage applicant is acceptable income for
qualifying as long as the lender can document the stability of the rental income through a(n)
agreement to lease, or
rental history over the previous 24 months that is free of unexplained gaps greater than
three months (such gaps could be explained by student, seasonal or military renters, or
property rehabilitation). A separate schedule of real estate is not required for
rental properties as long as all properties are documented on the Uniform Residential Loan
Limited or No History of Rental Income To calculate the Effective Income from the subject
The property where the FHA mortgage applicant does not have a history of Rental Income from the subject Property
since the previous tax filing, the FHA mortgage lender must use
the lesser of:
the monthly operating income reported on Freddie Mac Form 998; or
75 percent of the lesser of:o fair market rent reported by the
Appraiser; or o the rent reflected in the lease or other rental agreement.
Rental Income from Other Real Estate Holdings
Rental Income from other real estate holdings may be considered Effective Income if the documentation
requirements listed below are met. If Rental Income is being derived from the Property being vacated by the FHA mortgage applicant, the FHA mortgage applicant must be relocating to an area more than 100 miles from the FHA mortgage applicant’s current Principal Residence. The Mortgagee must obtain a lease agreement of at least one year’s duration after the Mortgage is closed and evidence of the payment of the security deposit or first month’s rent.
Required Documentation (i) Limited or No History of Rental Income
Where the FHA mortgage applicant does not have a history of Rental Income for the Property since previous tax filing, including Property being vacated by the FHA mortgage applicant the Mortgagee must obtain an appraisal evidencing market rent and that the FHA mortgage applicant has at least 25 percent equity in the Property. The appraisal is not required to be completed by an FHA Roster Appraiser.
History of Rental Income
The FHA mortgage lender must obtain the Borrower’s last two years’ tax returns with Schedule E.