FHA Expands Mortgage Eligibility for Borrowers Previously Affected by COVID-19

The Federal Housing Administration on Thursday expanded mortgage eligibility for borrowers who experienced a gap in employment and/or a reduction or loss of income due to a COVID-19 related economic event.

FHA published Mortgagee Letter (ML) 2022-09Calculating Effective Income after a Reduction or Loss of Income for Borrowers Affected by Presidentially-Declared COVID-19 National Emergency. The guidance allows flexibility in calculating income for borrowers where the borrower’s effective income is now stable. FHA said these flexibilities will allow more borrowers who have recovered from a COVID-19 related economic event to be appropriately evaluated for FHA financing.

“The changes we are announcing today further our efforts to facilitate recovery from COVID-19 and support access to homeownership, particularly for populations most deeply impacted by the pandemic,” said FHA Commissioner Julia Gordon. “The pandemic affected the livelihoods of tens of millions of workers in this country, particularly workers of color and those at the lower end of the wage scale. Limiting these families’ homeownership opportunities because of the unavoidable impacts of an unprecedented global health crisis, when they are otherwise well-qualified for a mortgage, is unnecessary and contrary to this Administration’s goals and FHA’s mission.”

FHA defines a COVID-19 Related Economic Event as a temporary: (1) loss of employment, (2) reduction of income, and/or (3) reduction of hours worked during the Presidentially-Declared COVID-19 National Emergency. As a result, the ML updates the borrower’s effective income calculation guidelines for the following sections in the Single-Family Housing Policy Handbook 4000.1 (Handbook 4000.1):

Salaried and hourly wage-earners, as well as self-employed individuals affected by COVID-19, who now have stable income will have a greater opportunity to purchase a home using affordable FHA-insured mortgage financing.

FHA said lenders can begin using the new policies immediately but must implement the new policies for FHA case numbers assigned on or after September 5.