AWACSMortgage compliance intelligence from Flightline

FHA · Mortgagee Letter ML 2025-04 · Published

Revisions to Policies for Rental Income from Boarders of the Subject Property

FHA Mortgagee Letter 2025-04 updates policies for documenting and calculating rental income from boarders of the subject property for TOTAL and manually underwritten mortgages. Mortgagees may implement the flexibilities immediately, and compliance is required for FHA case numbers assigned on or after March 14, 2025.

Review recommendedCase numbers assigned on or after Mar 14, 2025 · may adopt nowChecks passed· adjusted automaticallyRead the letter ↗ (opens in a new tab)

Loan impact

From the letter text · needs review

Applies to: FHA Title II Single Family forward mortgages where rental income from boarders of the subject property is used to qualify the borrower.

Applies when all of these are true
  • ANDFHA loan with a manual underwriting or Total
  • ANDCase number date on or after March 14, 2025, or earlier if the seller adopts now
Addressed to
All FHA-Approved Mortgagees
Investor
FHAFrom the publisher, not quoted from the text
Programs
FHA, manual underwriting or Total onlyFrom the publisher, not quoted from the text
Occupancy
Primary residence
Affected area
Rental incomeGuide Section II.A.4.c.xii(I)(4)
Affected documents
Borrower's Tax Returns; bank statements; canceled checks; deposit slips; executed written agreement
Exceptions
A renter of an ADU is not a Boarder.
Effective
Case numbers assigned on or after Mar 14, 2025Sellers may implement immediately
Applicability confidence
Needs review: some rows could not be matched to a quote from the source
Supporting quotes from the letter
  • occupancy“Rental Income from Boarders may be considered Effective Income if the occupying Borrower has a 12-month history of receiving income from Boarders and is currently receiving Boarder income.”
  • conditions“The provisions of this ML may be implemented immediately but must be implemented for FHA case numbers assigned on or after March 14, 2025.”
  • exceptions“A renter of an ADU is not a Boarder.”
  • affected areas“This ML updates the standards, documentation requirements, and calculation of a Borrower’s Effective Income for the following sections: • Boarders of the Subject Property (TOTAL) (II.A.4.c.xii(I)(4)); and • Boarders of the Subject Property (Manual) (II.A.5.b.xii(I)(4)).”
  • guide sections“This ML updates the standards, documentation requirements, and calculation of a Borrower’s Effective Income for the following sections: • Boarders of the Subject Property (TOTAL) (II.A.4.c.xii(I)(4)); and • Boarders of the Subject Property (Manual) (II.A.5.b.xii(I)(4)).”
  • affected documents“The Mortgagee must verify and document the existing Rental Income from Boarders by obtaining the following: • evidence of rental history over the previous 12 months; • evidence of Rental Income received from Boarders for at least nine of the most recent 12 months in the form of: o the Borrower’s Tax Returns; or o bank statements, canceled checks, or deposit slips, showing rental payments received; • evidence that the Boarder’s address is the same as the Borrower’s address; and • a copy of the executed written agreement documenting the boarding terms and the Boarder’s intent to continue boarding with the Borrower.”
  • underwriting methods“This ML updates the standards, documentation requirements, and calculation of a Borrower’s Effective Income for the following sections: • Boarders of the Subject Property (TOTAL) (II.A.4.c.xii(I)(4)); and • Boarders of the Subject Property (Manual) (II.A.5.b.xii(I)(4)).”

What changed

From the letter text · Sections II.A.4.c.xii(I)(4), II.A.5.b.xii(I)(4)
RequirementPreviouslyNow
Boarder rental income standard for TOTAL Mortgage Scorecard mortgagesRelaxedSection II.A.4.c.xii(I)(4)Not statedThe Mortgagee may consider Rental Income from existing Boarders as Effective Income if the occupying Borrower has a 12-month history of receiving income from Boarders and is currently receiving Boarder income, permitted whether the Borrower currently rents or owns the Dwelling Unit.
Applies when: Engine is total, or earlier if the seller adopts now
Boarder rental income standard for manually underwritten mortgagesRelaxedSection II.A.5.b.xii(I)(4)Not statedThe Mortgagee may consider Rental Income from existing Boarders as Effective Income if the occupying Borrower has a 12-month history of receiving income from Boarders and is currently receiving Boarder income, permitted whether the Borrower currently rents or owns the Dwelling Unit.

What to do

AWACS interpretation · not source language

What to review: Review updated underwriting flexibilities allowing rental income from existing boarders for occupying borrowers who rent or own, along with documentation criteria and calculation caps.

QC implications

  • Sample loans using boarder income to confirm a 12-month history, payment documentation for at least nine of the last 12 months, shared address verification, and an executed written agreement.
  • Verify that boarder rental income is calculated using the lesser of the 12-month average or current agreement rent and does not exceed 30 percent of total monthly effective income.
  • Confirm that tenants renting an accessory dwelling unit are not treated as boarders under these guidelines.

Source and record

Version 1 · archived

Checks

  • Source verified: Passed

    The document ID, link and publication date match the official source.

  • Quotes match the source: Passed, adjusted automatically

    Every quoted passage appears word for word in the official document.

    • A detail the source does not support was removed or adjusted

  • Requirements backed by the source: Passed, adjusted automatically

    Anything marked required is backed by the requirement language and dates in the source.

    • A detail the source does not support was removed or adjusted

  • In scope: Passed

    The document is about residential mortgage lending.

  • Format and labels: Passed

    The record follows the AWACS format and uses its standard labels.