An FHA loan applicant who owns a property he or she is currently renting would naturally want to include that income on the loan application. As with all other sources of income, the borrower must not only list the amount of that income, but also be able to show to the lender that the money is stable.
Since an FHA lender is charged with verifying all sources of income, the borrower must provide proof that rent money coming in is likely to continue.
What does the FHA require as proof of dependable income when it comes to rent payments? According to the FHA official site, “Examples of stability may include a current lease, an agreement to lease, or a rental history over the previous 24 months that is free of unexplained gaps greater than three months.”
Note the language in that sentence. The FHA does not take exception to explainable gaps in rental income. Any gaps would have to be accompanied by a reason, which according to the FHA rulebook would be acceptable in cases of student renters, seasonal tenants, or military occupants.
The FHA adds, “If the borrower resides in one or more units of a multiple-unit property and charges rent to tenants of other units, that rent may be used for qualifying purposes. However, projected rent of additional units only and not the owner-occupied unit(s) may be considered gross income only after deducting the HOC’s vacancy and maintenance factor.”
As you can see, the FHA does allow the rent income when explained properly, but is strict about how the income is documented and counted as part of a borrower’s debt-to-income ratio. Rental income is also regulated when it comes to single-family homes.
The FHA does not allow “roommate rent” to be included as verifiable income. According to the FHA official site, “Income from roommates in a single-family property to be occupied as the borrower’s primary residence is not acceptable.”
That said, the FHA does make an exception for “boarders”, stating “Rental income from boarders is acceptable if the boarders are related by blood, marriage, or law.” The FHA will accept this type of income if it is listed on the borrower’s income tax paperwork, otherwise such income can only be listed as a compensating factor.