The Federal Housing Administration (FHA) is considering new guidelines that may allow borrowers to use rental income from housemates or boarders as part of their mortgage applications. The proposal could make homeownership more accessible for first-time buyers and underserved communities.

Simplified Rules for Rental Income

The proposed changes aim to streamline how "boarder income" is documented and calculated during the mortgage underwriting process. Currently, borrowers must show a two-year history of boarder income to include it in their mortgage applications. The new guidelines reduce this requirement to just 12 months.

To qualify, borrowers would need to demonstrate:

• Rental income received for at least nine of the past 12 months.
• Current receipt of rental income.
• An average rental income calculated over the 12-month period.

Caps and Limits on Rental Income

The FHA’s proposal includes safeguards to ensure boarder income remains a supplemental resource:

• Rental income used for qualification cannot exceed 30% of the borrower’s total monthly effective income.
• This limitation helps maintain a balance between boarder income and the borrower’s primary income sources.

Expanded Documentation Options

The draft policy introduces more flexible ways to verify rental income. Borrowers would be able to use:

• Bank statements.
• Canceled checks.
• Deposit slips showing rental payments.

These options aim to reduce administrative hurdles and simplify the application process for borrowers.

Supporting Homeownership

By easing requirements for rental income use and expanding acceptable documentation, the FHA seeks to provide new pathways to homeownership. The changes are particularly geared toward helping first-time buyers and individuals in underserved communities who might rely on boarder income.

Feedback and Next Steps

The policy remains in draft form and cannot yet be applied to FHA-insured mortgages. Stakeholders, including lenders and housing advocates, have until December 10 to submit feedback. The FHA will evaluate all comments before finalizing the Mortgagee Letter.

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