B3-3.8-01, General Rental Income Information (09/02/2026)

In conjunction with the policies in this topic, lenders must also comply with, as applicable, but not limited to, the policies in the following:

• B2-2-03, Multiple Financed Properties for the Same BorrowerB2-2-03, Multiple Financed Properties for the Same Borrower;
• B3-3.1-01, General Income InformationB3-3.1-01, General Income Information (Continuance of Income);
• B3-4.1-01, Minimum Reserve RequirementsB3-4.1-01, Minimum Reserve Requirements; and
• B3-6-06, Qualifying Impact of Other Real Estate OwnedB3-6-06, Qualifying Impact of Other Real Estate Owned.

See also, DU Job Aids, for additional information on using income from rental property in DU.

Generally, rental income from the borrower’s principal residence (a one-unit principal residence or the unit the borrower occupies in a two- to four-unit property) or a second home cannot be used to qualify the borrower. However, Fannie Mae does allow certain exceptions to this policy for boarder income and rental income on principal residence properties with accessory units. See B3-3.4-04, Boarder IncomeB3-3.4-04, Boarder Income, for boarder income requirements.

Rental Income is an acceptable source of stable income if it can be established that the income is likely to continue. 

The amount of rental income used to qualify may be restricted depending on whether the borrower currently has a housing payment and/or a history of property management experience.

Housing Payment

A housing payment is the total monthly amount the borrower(s) is currently making for the primary residence occupied by the borrower(s).

A housing payment must only include the following:

• rental housing payment,
• PITIA payment and/or leasehold payment for mortgaged properties, or
• property taxes and/or leasehold payments for non-mortgaged properties.

If not otherwise documented as one of the borrower's existing liabilities from the credit report, the lender must document the borrower's housing payment. Documentation may include, but is not limited to:

• direct verification of rent from a management company,  
• minimum of six months bank statements reflecting payment or an organization or individual, 
• minimum of six months cancelled checks or equivalent reflecting payment to an organization or individual, or
• evidence of payment of the latest property tax bill.

See B3-6-05, Monthly Debt ObligationsB3-6-05, Monthly Debt Obligations for additional information.

Property Management Experience

Lenders may only use positive rental income for qualifying income if the borrower(s) has at least 12 months of property management experience.

The lender must establish the 12-month history of property management experience by obtaining one of the following:

• the borrower's most recent signed individual federal income tax return (IRS Form 1040), including Schedules 1 and E, reflecting rental income received for any property and supporting 365 Fair Rental Days;
• the borrower's most recent signed business federal tax return(s) (IRS Form 1065 or 1120S), including Form 8825, reflecting rental income received for any property supporting 365 Fair Rental Days; or
• when any property has been owned for at least one year, but the Schedule E does not reflect 365 Fair Rental Days, then
  • the most recent signed lease agreement(s) reflecting a minimum of 12 months of rental income may be used to supplement the individual federal income tax return (IRS Form 1040); or

  • two years of the most recent individual federal income tax returns (IRS Form 1040), reflecting rental income received may be used to document the property was in service for the full year.

    Example: If a short-term rental has been in service for more than one year but Schedule E reflects fewer than 365 Fair Rental Days in each tax year, or if the property was out of service during the prior year, Schedule E must support this with a reduced number of Fair Rental Days and related repair costs.

Note: When none of the above scenarios apply, the lender may document property management experience using a fully executed lease agreement dated at least 12 months prior to the loan application date, provided the related property has not yet been reported on individual or business federal tax return(s).

The lender may only use qualifying rental income to offset the PITIA when the borrower(s) has no prior property management experience, or less than 12 months of experience.

See B3-3.8-02, Rental Income from the Subject PropertyB3-3.8-02, Rental Income from the Subject Property, B3-3.8-03, Rental Income from the Subject Property: Short-Term RentalB3-3.8-03, Rental Income from the Subject Property: Short-Term Rental, B3-3.8-04, Rental Income from Non-Subject PropertyB3-3.8-04, Rental Income from Non-Subject Property, B3-3.8-05, Rental Income from Non-Subject Property: Departing ResidenceB3-3.8-05, Rental Income from Non-Subject Property: Departing Residence, and Lease Agreements below for further information.

The lender may only use a lease agreement to determine qualifying rental income from an investment property when one of the following scenarios applies:

• purchase transactions where there is an existing lease agreement(s) on the property that will be transferred to the borrower;
• the borrower purchased the rental property during or subsequent to the last tax return filing;
• the property experienced significant rental interruptions causing income to not be reported on the most recent tax return (for example, major renovation to a property occurred in the prior year that affected rental income);
• rental income is being used to qualify for any property placed in service in the current calendar year; or
• the lender determines that some other situation warrants the use of a lease agreement with appropriate explanation and justification in the loan file.

The lender is not permitted to use a lease agreement to determine qualifying rental income from an investment property in the following scenarios:

• the investment property is a departing residence, or 

• for investment properties purchased within 45 days of the subject property.

  See B3-3.8-05, Rental Income from Non-Subject Property: Departing ResidenceB3-3.8-05, Rental Income from Non-Subject Property: Departing Residence or B3-3.8-06, Rental Income from Non-Subject Property: Investment Properties Purchased within 45 Days of the Subject PropertyB3-3.8-06, Rental Income from Non-Subject Property: Investment Properties Purchased within 45 Days of the Subject Property for additional information.

Lease Agreement Requirements

If the lender uses a lease agreement for determining qualifying income, the following requirements must be met:

• The rental payment on the lease must be reflected in U.S. dollars and cannot be in virtual currency.
• For newly executed lease agreements (dated within two months of the loan application), properties not reported on the individual federal income tax return (IRS Form 1040) must contain a minimum term of at least six months, with the initial rental payment due on or before the first payment due date of the subject mortgage.

Note: For properties reported on the individual federal income tax return (IRS Form 1040) have no minimum term requirements.

The lender must also confirm lease agreements for subject and non-subject properties not reported on the borrower's most recent individual federal income tax return (IRS Form 1040) satisfy the following requirements:

• The agreement(s) cannot be with an interested party or family member.
• The lender must obtain evidence that the terms of the lease have gone into effect by obtaining the most recent two consecutive months of bank statements or electronic transfers of rent payments showing an identifiable rental amount for the related property that aligns with the lease agreement; or
  • If the lease agreement is newly executed, in lieu of providing the most recent two consecutive months of bank statements or electronic transfer of rent payments, the lender may instead obtain copies of the security deposit and the first full month's rent check/money orders with proof of deposit, or electronic transfers showing identifiable deposit and rental amounts; or
  • Regardless of the age of the lease agreement, in lieu of providing the most recent two consecutive months of bank statements or electronic transfer of rent payments, the lender may instead obtain evidence of a property management agreement, not associated with the borrower or an interested party, along with proof of rents paid for the most recent two consecutive months.

Note: Any variance between the documented rental income and the rental amount reflected in the lease agreement must be adequately explained by the borrower or property management company. The lender must retain all documentation to evidence the explanation in the loan file.

The treatment and amount of monthly qualifying rental income varies depending on whether the borrower occupies the rental property as their principal residence.

If the rental income (or loss) relates to the borrower’s principal residence

• The lender must add the monthly positive qualifying rental income to the borrower’s total monthly income, and the full amount of the monthly mortgage payment (PITIA) must be included in the borrower's total monthly obligations when calculating the DTI ratio. (The income cannot be netted against the PITIA of the property.)
• The lender must account for any rental loss by including the full PITIA amount as part of the borrower’s monthly obligations when calculating the DTI ratio.

If the rental income (or loss) relates to a property other than the borrower's principal residence

• When the monthly qualifying rental income minus the full PITIA is positive, the lender must add it to the borrower’s total monthly income.
• When the monthly qualifying rental income minus PITIA is negative, the lender must add the monthly net rental loss to the borrower’s total monthly obligations.
• The full PITIA for the rental property must be factored into the amount of the net rental income (or loss); therefore, the lender must not include it as a monthly obligation.
• The lender must include the full monthly payment for the borrower's principal residence (full PITIA or monthly rent) as a monthly obligation.

Note: In cases where a borrower owns multiple rental properties, the rental income (or loss) for all non-subject properties must be calculated separately and then aggregated. The lender must add the aggregate amount to the borrower's total monthly income or include it in their monthly obligations (loss), as applicable.

See also B3-3.8-02, Rental Income from the Subject PropertyB3-3.8-02, Rental Income from the Subject Property, B3-3.8-03, Rental Income from the Subject Property: Short-Term RentalB3-3.8-03, Rental Income from the Subject Property: Short-Term Rental, B3-3.8-04, Rental Income from Non-Subject PropertyB3-3.8-04, Rental Income from Non-Subject Property, or B3-3.8-05, Rental Income from Non-Subject Property: Departing ResidenceB3-3.8-05, Rental Income from Non-Subject Property: Departing Residence.

Fannie Mae publishes worksheets that lenders may use to calculate rental income. The Income Calculator may also be used to calculate certain rental income. Use of Income Calculator or these worksheets is optional. The worksheets are:

• Rental Income Worksheet – Principal Residence, 2– to 4–unit Property (Form 1037),
• Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 4 properties) (Form 1038),
• Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 10 properties) (Form 1038A).

See B3-3.1-03, Income CalculatorB3-3.1-03, Income Calculator, for additional information.

The lender must report eligible monthly gross rent on the subject property to Fannie Mae in the loan delivery data for two- to four-unit principal residences and all investment properties, regardless of whether the borrower is using rental income to qualify for the loan.

If the borrower is not using any rental income from the subject property to qualify, the lender must only document monthly gross rent for lender reporting purposes, using one of the following sources (listed in order of preference):

• the appraisal report for a one- to four-unit residential property or Single-Family Comparable Rent Schedule ( Form 1007), provided none of the applicable appraisal nor Form 1007 and related information is dated 12 months or more prior to the date of the note;
• an opinion of market rents provided by the appraiser if the property is not currently rented; or
• a written statement from the borrower or inclusion of the monthly gross rent being charged (or to be charged) for the property on the Uniform Residential Loan Application if the file does not require an appraisal or Form 1007. The monthly gross rental amounts must be stated for each unit in a two- to four-unit property.

The lender must retain all documentation used to support the amount of eligible rent reported in the loan file.

Lenders using UAD 3.6 must follow the requirements in the UAD 3.6 Policy Supplement.