FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04
HUD Mortgagee Letter 2025-04. See obligation entries for operative requirements and verbatim primary-source citations.
Verbatim regulatory text
Verbatim provisions from FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
HUD ML 2025-04 — Boarders of the Subject Property: Eligibility Standard
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.
HUD ML 2025-04 — Boarders of the Subject Property: Required Documentation (II.A.4.c.xii(I)(4)(c) / II.A.5.b.xii(I)(4)(c))
The Mortgagee must verify and document the existing Rental Income from Boarders by obtaining the following:
HUD ML 2025-04 — Boarders of the Subject Property: Calculation Cap
The amount of the Rental Income from Boarders used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower.
FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — Purpose
This Mortgagee Letter (ML) implements flexibilities for documenting and calculating income from Boarders of the subject Property beyond the current standard.
FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — Effective Date
The provisions of this ML may be implemented immediately but must be implemented for FHA case numbers assigned on or after March 14, 2025. All policy updates in the ML will be incorporated into a forthcoming update of the HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1).
FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — Affected Programs
The provisions of this ML apply to all FHA Title II Single Family forward mortgage programs.
FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — Background
HUD continually strives to ensure FHA underwriting guidelines effectively serve the needs of Borrowers and expand access to credit, especially those most affected by the evolving dynamics of the housing market. A key aspect of this housing evolution is the increasingly relevant discussion around Boarders and Rental Income from Boarders of the subject Property. Recent research highlights a significant increase in such living arrangements over the last decade, with a pronounced rise in recent years due to shifts such as the pandemic and other economic and cultural influences. The prevalence of these factors has contributed to the growing trend of Boarder income as a stable and viable option to manage housing costs and increase housing affordability. Given this, the industry is advocating for alignment with industry standards and more flexible approaches to qualify Borrowers using Rental Income from Boarders of the subject Property. By implementing these policy changes, FHA expects to expand the pool of Borrowers eligible for FHA mortgage insurance, thereby extending affordable housing opportunities to a broader spectrum of first-time buyers and individuals with Low- to Moderate-Incomes. These adjustments support FHA’s commitment to ensure underwriting guidelines effectively serve the needs of Borrowers and expand homeownership opportunities in underserved communities.
FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04 — Summary of Changes
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)). FHA Single Family Housing Policy Handbook 4000.1 Origination through Post- closing/ Endorsement The policy changes will be incorporated into Handbook 4000.1 as follows: Rental Income (TOTAL) (II.A.4.c.xii(I)) (4) Boarders of the Subject Property (TOTAL) (a) Definition Boarder refers to an individual renting space inside the Borrower’s Dwelling Unit. A renter of an ADU is not a Boarder. (b) Standard The Mortgagee may consider Rental Income from existing Boarders if documented in accordance with the following requirements. 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. Rental Income from Boarders is permitted whether the Borrower currently rents or owns the Dwelling Unit. (c) Required Documentation 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. (d) Calculation of Effective Income The Mortgagee must calculate Rental Income from Boarders by using the lesser of: • the 12-month average; or • the current rent as documented in the written agreement. Where Rental Income from Boarders has been documented for at least nine of the last 12 months, the Mortgagee must average the Rental Income over a 12-month period. The amount of the Rental Income from Boarders used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower. Rental Income (Manual) (II.A.5.b.xii(I)) (4) Boarders of the Subject Property (Manual) (a) Definition Boarder refers to an individual renting space inside the Borrower’s Dwelling Unit. A renter of an ADU is not a Boarder. (b) Standard The Mortgagee may consider Rental Income from existing Boarders if documented in accordance with the following requirements. 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. Rental Income from Boarders is permitted whether the Borrower currently rents or owns the Dwelling Unit. (c) Required Documentation 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. (d) Calculation of Effective Income The Mortgagee must calculate Rental Income from Boarders by using the lesser of: • the 12-month average; or • the current rent as documented in the written agreement. Where Rental Income from Boarders has been documented for at least nine of the last 12 months, the Mortgagee must average the Rental Income over a 12-month period. The amount of the Rental Income from Boarders used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower.
Operationalizing FHA Mortgagee Letter 2025-04 — Mortgagee Letter 2025-04
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Source of record: https://claudeforcompliance.com/regs/hud-ml-2025-04/
· register hud-ml-2025-04 · Claude for Compliance. Free to read and download;
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