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Mortgagee Letter 2020-24
The Federal Housing Administration (FHA) published
Mortgagee Letter 2020-24 on July 29, 2020, announcing temporary modifications regarding self-employed borrowers and rental income effective for cases with note dates on or after August 12, 2020.
The temporary changes include the following:
Verification of Self-Employment
When self-employment income is used to qualify a borrower, the mortgagee must verify and document that the income is stable and will continue.
Due to COVID-19, the mortgagee must verify the existence of the borrower's business within 10 calendar days prior to the date of the note to confirm the business is open and operating.
The mortgagee may obtain one of the following:
- Evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
- Evidence of current business receipts within 10 days of the note date (payment for services performed);
- 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).
Rental Income
When a borrower is qualifying utilizing rental income, for each property generating rental income, the mortgagee must either:
- Reduce the effective income associated with the calculation of rental income by 25%, or
- Verify 6 months PITI reserves (this option is applicable to Forward only), or
- Verify the borrower has received the previous two months rental payments as evidenced by the borrower's bank statements showing the deposit. (This option is applicable only for borrowers with a history of rental income.)
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