Updated to extend effective date for the temporary underwriting guidance
August 7, 2020 -
Updated November 27, 2020 and December 29, 2020 (in italics)
Summary
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 guidance that was issued in FHA Mortgagee Letter 2020-24 and then extended in FHA Mortgagee Letter 2020-40 and most recently FHA Mortgagee Letter 2020-46.
The temporary requirements outlined below are now effective for FHA Case Numbers assigned on or before February 28, 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).
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 |
|
|
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 |
$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 |
Please reference the NewRez Lending Library for the details outlined in this announcement.