Announcement 2020-093 - FHA Updates – 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 recent guidance issued in FHA Mortgagee Letter 2020-24 and re-issued with extended end date in FHA Mortgagee Letter 2020-40. The temporary requirements outlined below are effective for FHA Case Numbers assigned on or before December 31, 2020.

Updated November 27, 2020

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%

 

Example

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)
($1,000 x 25%=$250)

- $250.00

Net Rental Income

$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