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FHA Underwriting Changes – Rental Income

The FHA is now taking steps to respond to “unhealthy” practices regarding the housing market, especially with FHA and FHA Approved Lenders.

We have seen first-hand, and taken hundreds of applications on, homeowners that are vacating their current residences to purchase another property. Due to rising fuel costs, most people have been relocating to be closer to their work and other great home buying opportunities in their local areas, and in turn, do not want the responsibility of having to pay 2 mortgage payments per month. This being said, the average consumer is under the impression, that with FHA, their rental income should count in qualifying for the NEW home that they are buying- but that MAY not be the case in the near future.

Essentially what is happening is that the Federal Housing Administration is cracking down on their guidelines in regards to potential home buyers that are planning on qualifying on the new home by using the rental income from their current house. Effective immediately,  rental income from their current residence cannot be used in order to qualify for the new home.

We are closely monitoring the temporary underwriting change to see if this will soon evolve into a permanent rule.

There are 2 exceptions to this, however, and they are:

  1. Relocations –  The home buyer is relocating with their current employer, or being transferred to an area not within reasonable and locally recognized commuting distance.
  2. Sufficient Equity in Vacant Property – The home buyer has at least 25% equity in the property, as determined by a residential appraisal no more than 6 months old.

If the applicant already owns rental properties that are disclosed on the application, that is OK; this rule ONLY applies to a principal residence being vacated in favor of another principal residence.

Rest assured that you will be the first to know on the ongoing process of guideline changes, as we at are your FHA loan experts!