Use an FHA Loan to Buy a Multi Family Home with Rental Income in Massachusetts

If you are looking to buy a multi family home in Massachusetts using the FHA loan program, you can use rental income from the property to help you qualify for the mortgage.

The FHA guidelines allow rental income to be added to your income to help you qualify for the property.

Here are the guidelines on using rental income with the FHA loan program:

  • The property must be a 2–4 unit dwelling.

What this means: The property cannot be more than 5 units. It can also not be only 1 unit unless you are buying the unit as an investment unit for renters to live in.

  • The Mortgagee must verify and document the proposed Rental Income by obtaining an appraisal showing fair market rent.

What this means: The rental income that is used to qualify you will be determined by the appraisal of the property that the mortgage company obtains. Just because the real estate agent tells you that you can rent one of the units for $2000 per month does not mean the appraiser will come up with the same number.

If you are using rental income to qualify, it is best to use a conservative number based on comparable rents in the neighborhood as opposed to relying on a real agent’s guess.

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  • To calculate income used to qualify the mortgage company will use 75 percent of the lesser of:
  • fair market rent reported by the Appraiser; or
  • the rent reflected in the lease or other rental agreement.

What this means: If the appraiser says the rent of a unit will be $2000 per month, the mortgage company will actually use $1500 per month for your qualification ($2000x75%). If there is a lease already in place on the unit for $1800 a month then the mortgage company will use $1350 for your qualification ($1800x75%). As the guideline says the mortgage company will use the lesser of the two numbers.

If there is a rental agreement or lease in place for the unit make sure you tell the mortgage company so they can factor this into your qualification.

Using the FHA loan program allows you to use rental income to help you qualify to buy a home in Massachusetts, but make sure you follow the guidelines to use the correct amount.

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