Fannie Mae Selling Guide B3-3.8-02 — Rental Income from the Subject Property

Fannie Mae Selling Guide B3-3.8-02 — Rental Income from the Subject Property

Effective 2026-09-02 · publisher's stamp for this provision

B3-3.8-02, Rental Income from the Subject Property (09/02/2026) This topic contains required documentation and rental income qualification criteria for a one- to four-unit subject property. Criteria Requirements Eligibility The following property types are eligible: • two-to four-unit principal residences, or • one-to four-unit investment property, or • one-unit Accessory Dwelling Unit (ADU) allowed with a one-unit primary residence only. Criteria Requirements Documentation Required to Determine Monthly Gross Rental Income The lender must document the borrower's current housing payment to use any rental income from the subject property in qualifying. 1 Purchase: The lender must obtain the following: • a Single-Family Comparable Rent Schedule ( Form 1007) or Small Residential Income Property Appraisal Report (Form 1025), as applicable, and • a copy of the fully executed lease agreement(s) when a lease is being transferred to the borrower. 2 and 5 (This must be supported by Form 1007 or Form 1025.) If the current market rents do not reasonably support the gross rents reported on the lease agreement, the lender must: • determine if additional documentation is necessary to support income stability, • provide a written analysis explaining the discrepancy, and to justify their determination that the rental income used in qualifying the borrower is stable and reasonably expected to continue; or • use the lesser amount. Refinance: The lender must obtain the following: • Form 1007 or Form 1025, as applicable, to support monthly gross rents; • the most recent individual federal income tax returns (IRS Form 1040), including Schedules 1 and E; and • copies of the current lease agreement(s) if the property meets one of the qualifying examples to justify the use of a lease agreement. 2 In addition, the lender must also confirm the following: • the lease or rental amount is supported by Form 1007 or Form 1025; • documentation to support the terms of the lease are in effect, 2 and the settlement statement or alternative documentation confirming the subject property's purchase or transfer of ownership date; or • the repair expenses on Schedule E ⚬ reflect the costs for renovation or rehabilitation, ⚬ confirm the number of Fair Rental Days is less than 365, and ⚬ support the amount of time the subject property was out of service. If the current market rents do not reasonably support the gross rents reported on Schedule E or the lease agreement for either transaction type, the lender must • determine if additional documentation is necessary to support income stability, • provide a written analysis explaining the discrepancy and justify their determination that the rental income used in qualifying the borrower is stable and reasonably expected to continue; or • use the lesser amount. Criteria Requirements Determination of Qualifying Rental Income Purchase: To determine adjusted net rental income (ANRI), the lender must • multiply monthly gross rent by 75% for the net rental income amount, then • subtract the PITIA of the subject property from the net rental income. Example: Gross monthly rent x .75 = Net Rental Income Net Rental Income - PITIA = ANRI When the borrower has 12 months or more of rental property management experience • if ANRI is positive, the lender may use the full amount in qualifying. 3 • if ANRI is negative, the lender must include the amount in the DTI ratio. 3 When the borrower has less than 12 months of rental property management experience • if ANRI is positive, the lender may use the rental income to offset the PITIA only. 3 • if ANRI is negative, the lender must include the amount in the DTI ratio. 3 Refinance: To determine the adjusted net rental income (ANRI) • If the subject property is reported on Schedule E of the most recent individual federal income tax return (IRS Form 1040) and meets one of the qualifying examples to justify the use of a lease agreement, 2 the lender must ⚬ calculate the net rental income by performing a cash flow analysis using Schedule E, ⚬ average the results over the number of months the property was in service, 4 then ⚬ subtract the PITIA of the subject property. • If the subject property is listed on Schedule E and the property does not meet one of the qualifying examples to justify the use of a lease agreement, the lender must ⚬ calculate net rental income by performing a cash flow analysis using Schedule E, and ⚬ average the results over 12 months. 4 • If the subject property is not reported on Schedule E of the most recent individual federal income tax return (IRS Form 1040), the lender must ⚬ multiply the lease amount by 75% for the net rental income amount, then ⚬ subtract the PITIA for the subject property. When the borrower has 12 months or more of rental property management experience • if ANRI is positive, the lender may use the full amount in qualifying. 3 • if ANRI is negative, the lender must include the amount in the DTI ratio. 3 When the borrower has less than 12 months of rental property management experience • if ANRI is positive, the lender may use the rental income to offset the PITIA only. 3 • if ANRI is negative, the lender must include the amount in the DTI ratio. 3 Note: Cashflow of the subject property equals the net amount on Schedule E plus any depreciation, interest, homeowners' association dues, taxes, or insurance expenses divided by the number of months as noted above. The lender may add back non-recurring property expenses, if documented accordingly. ADU Limitations The following limitations apply to properties with ADUs: • Rental income is only allowed from one existing ADU. • Purchase or limited cash-out refinance transactions only. • The qualifying rental income amount from the ADU is limited to 30% of the total qualifying income. Criteria Requirements Uniform Appraisal Dataset (UAD) 3.6 Policy Lenders using UAD 3.6 must follow the requirements in the UAD 3.6 Policy Supplement. See Eligibility Standards for Qualifying Rental Income in B3-3.8-01, General Rental Income Information for current housing payment requirements. 1 See Lease Agreements in B3-3.8-01, General Rental Income Information for additional information. 2 See Treatment of Rental Income (or Loss) in B3-3.8-01, General Rental Income Information for additional information. 3 See Rental Income Calculation Tools in B3-3.8-01, General Rental Income Information for additional information. 4 See B2-1.5-03, Legal Requirements and B7-2-05, Title Exceptions and Impediments for additional information.

Source: Fannie Mae Selling Guide B3-3.8-02 — Rental Income from the Subject Property · source URL · snapshot 2897f21e1e729b42