FHA: If rental Income is being derived from a Property being vacated by the Borrower, the Borrower must be relocating to an area more than 100 miles from the Borrower’s current Principal Residence.
Required Documentation:
- 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
- Where the Borrower does not have a history of Rental Income for the Property since the previous tax filing, including Property being vacated by the Borrower, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property. The appraisal is not required to be completed by an FHA Roster Appraiser.
To calculate the effective net Rental Income from other real estate holdings where the Borrower does not have a history of Rental Income: deduct the Principal, Interest, Taxes, and Insurance (PITI) from 75 percent of the lesser of:
• fair market rent reported by the Appraiser; or
• the rent reflected in the lease or other rental agreement.
Conventional: The borrower can use rental income from departing primary only to offset the PITI.....assuming he doesnt have history of rental income on tax returns.
Required Documentation: A full executed lease and one of the following to offset the PITI for the current property:
- a 1007/1000 Comparable rent schedule
- documentation verifying receipt of two months of rental payments or
- receipt of the security deposit and the first month’s rental payment
To calculate the effective net Rental Income from other real estate holdings where the Borrower does not have a history of Rental Income: deduct the Principal, Interest, Taxes, and Insurance (PITI) from 75 percent of the lesser of:
• fair market rent reported by the Appraiser; or
• the rent reflected in the lease or other rental agreement.
For a Primary Residence that is being converted to an Investment Property:
Net rental income can only offset the principal, interest, taxes and insurance (PITI) and, when applicable, mortgage insurance premiums, leasehold payments, homeowners association dues (excluding unit utility charges) and payments on secondary financing on the converted Primary Residence unless documentation in the Mortgage file demonstrates that at least one Borrower has a minimum of one year of investment property management experience. If the investment property management experience requirement is met, then the full amount of the net rental income can be used for qualifying.
Thank you,
LSI Support
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