Limited or No History of Rental Income
To calculate the effective income from the subject property where the HECM Borrower does not have a history of rental income from the subject property since the previous tax filing, the Mortgagee must use the lesser of:
- the monthly operating income reported on Fannie Mae Form 216, or
- 75 percent of the lesser of:
- fair market rent reported by the appraiser; or
- the rent reflected in the lease or other rental agreement
The Mortgagee must calculate the rental income by averaging the amount shown on the Schedule E.
Depreciation, mortgage interest, taxes, insurance and any Homeowners’ Association (HOA) dues shown on Schedule E may be added back to the net income or loss.
If the property has been owned for less than two years, the Mortgagee must annualize the rental income for the length of time the property has been owned.
Additional Requirement due to the COVID-19 National Emergency:
The following requirement, published in Mortgagee Letter (ML) 2020-24 and extended in MLs 2020-40, 2020-46, 2021-07, and 2021-16 is effective for Case Numbers issued on or before September 30, 2021.
In addition to the requirements provided above, Mortgagees must also comply with the following requirements where a Borrower is qualifying with 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 percent (the current vacancy factor would not be included in with this calculation), or
- For Borrowers with a history of rental income from the property: Verify the Borrower has received the previous two months' rental payments as evidenced by Borrower’s bank statements showing the deposit.
For additional information see:
- Mortgagee Letter 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide, Section 3.51
- Mortgagee Letters 2021-16, 2021-07, 2020-46, 2020-40 and 2020-24: https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee