FHA Pre-Approved: How To Increase Loan Amount?

[Ryan Barr]

Struggled with the title. 

Like the title says I was pre-approved for a $235k FHA loan without a property in mind. Theoretically, I find a duplex worth say $280k, with a tenant in one side paying rent. I go back to the bank, adding that monthly rent to my income and potentially get approved for that higher price? Also if I have a roommate agree to paying me monthly as well does that count towards my income?

[Charlie Jordan]

I found this in FHA's 4000.1 Handbook. This is for rental income from subject property 2-4 units. Doesn't address border income (if you have a roommate). Hope this helps!

From the Subject Property

• The rent for a 2, 3, or 4-unit property, where the borrower resides in one or more units and charges rent to tenants of other units, may be used for qualifying purposes.
• The Mortgagee must verify and document the proposed Rental Income by obtaining an appraisal showing fair market rent (use Fannie Mae Form 1025/Freddie Mac Form 72, Small Residential Income Property Appraisal Report) and, if available, the prospective leases.
• Where the Borrower has a history of Rental Income from the subject since the previous tax filing, the Mortgagee must verify and document the existing Rental Income by obtaining the Borrower’s most recent tax returns, including Schedule E, from the previous two years.
• For Properties with less than two years of Rental Income history, the Mortgagee must document the date of acquisition by providing the deed, Settlement Statement or similar legal document.
• The Mortgagee must add the net subject property Rental Income to the Borrower’s gross income. The Mortgagee may not reduce the Borrower’s total Mortgage Payment by the net subject property Rental Income.
  • Limited or No History of Rental Income
    • To calculate the Effective Income from the subject Property where the 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 Freddie Mac Form 998; 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.
  • History of Rental Income
    • The Mortgagee must calculate the Rental Income by averaging the amount shown on Schedule E. Depreciation, mortgage interest, taxes, insurance and any 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