source:
  type: guide
  id: fnma-sel-b3-3.8-01
  authority: Fannie Mae Selling Guide B3-3.8-01 — Rental Income
  description: Fannie Mae Selling Guide B3-3.8-01 — Rental Income.
  coverage_tier: operative
obligations:
- id: fnma-sel-b3-3.8-01-full
  canonical_id: fnma-sel-b3-3.8-01-full
  section: Fannie Mae Selling Guide B3-3.8-01 — Rental Income
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B3-3.8-01 — Rental Income
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B3-3.8-01, Rental Income (10/08/2025) Introduction This topic
      provides information on qualifying a borrower’s rental income, including: Associated
      Policies Eligible Properties Ineligible Properties Rental Income from an ADU
      on the Subject Property General Requirements for Documenting Rental Income (Subject
      and Non-Subject Property) Documenting Rental Income from Subject Property Documenting
      Rental Income from Property Other Than the Subject Property Reconciling Partial
      or No Rental History on Tax Returns (Schedule E Only) Calculating Monthly Qualifying
      Rental Income (or Loss) Lease Agreements, Form 1007, or Form 1025 Treatment
      of the Income (or Loss) Oﬀsetting Monthly Obligations for Rental Property Reported
      through a Partnership or an S Corporation Rental Income Calculation Tools Reporting
      of Gross Monthly Rent Uniform Appraisal Dataset (UAD) 3.6 Policy Associated
      Policies In conjunction with the policies in this topic, lenders must also comply
      with, as applicable, but not limited to, the policies in the following: Published
      May 6, 2026 389 B2-2-03, Multiple Financed Properties for the Same Borrower;
      B3-3.1-01, General Income Information (Continuance of Income); B3-4.1-01, Minimum
      Reserve Requirements; and B3-6-06, Qualifying Impact of Other Real Estate Owned.
      See also, DU Job Aids, for additional information on using income from rental
      property in DU. Eligible Properties Rental income is an acceptable source of
      stable income if it can be established that the income is likely to continue.
      If the rental income is derived from the subject property, the property must
      be one of the following: a one-unit principal residence property with an existing
      accessory dwelling unit (ADU), with rental income from the ADU only, a two-
      to four-unit principal residence property in which the borrower occupies one
      of the units, or a one- to four-unit investment property. If the income is derived
      from a property that is not the subject property, there are no restrictions
      on the property type. For example, rental income from a commercial property
      owned by the borrower is acceptable if the income otherwise meets all other
      requirements (it can be documented in accordance with the requirements below).
      Ineligible Properties 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 Income, for boarder income requirements.
      Rental Income from an ADU on the Subject Property Rental income from an existing
      ADU can be used in qualifying with the following conditions: one-unit, principal
      residence only, rental income from only one ADU allowed, purchase or limited
      cash-out reﬁnance transactions, and qualifying rental income amount from the
      ADU is limited to 30% of the total qualifying income. All other documentation
      and requirements contained within this topic apply. General Requirements for
      Documenting Rental Income (Subject and Non- Subject Property) If a borrower
      has a history of renting the subject or another property, generally the rental
      income will be Published May 6, 2026 390 reported on IRS Form 1040, Schedule
      E of the borrower’s personal tax returns or on Rental Real Estate Income and
      Expenses of a Partnership or an S Corporation form (IRS Form 8825) of a business
      tax return. If the borrower does not have a history of renting the property
      or if, in certain cases, the tax returns do not accurately reﬂect the ongoing
      income and expenses of the property, the lender may be justiﬁed in using a fully
      executed current lease agreement. Examples of scenarios that justify the use
      of a lease agreement are purchase transactions where there is an existing lease
      on the property that will transfer to the borrower; reﬁnance transactions where
      the borrower purchased the rental property during or subsequent to the last
      tax return ﬁling; reﬁnance transactions for a property that 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); and transactions where rental income is being used
      to qualify for any property placed in service in the current calendar year,
      for example, when converting a principal residence to an investment property.
      When the subject property will generate rental income and it is used for qualifying
      purposes, one of the following Fannie Mae forms must be used to support the
      income-earning potential of the property: For one-unit properties: Single-Family
      Comparable Rent Schedule (Form 1007) (provided in conjunction with the applicable
      appraisal report), or For two- to four-unit properties: Small Residential Income
      Property Appraisal Report (Form 1025). Note: The rental payment on the lease
      must be reﬂected in U.S. dollars (cannot be in virtual currency). Documenting
      Rental Income from Subject Property The lender must obtain documentation that
      is used to calculate the monthly rental income for qualifying purposes. The
      documentation may vary depending on whether the borrower has a history of renting
      the property, and whether the prior year tax return includes the income. Does
      the Borrower Have a History of Receiving Rental Income From the Subject Property?
      Transaction Type Documentation Requirements Yes Reﬁnance Form 1007 or Form 1025,
      as applicable, and either • the borrower’s most recent year of signed federal
      income tax returns, including Schedule 1 and Schedule E, or • copies of the
      current lease agreement(s) if the borrower can document a qualifying exception
      (see Reconciling Partial or No Rental History on Tax Returns below). Published
      May 6, 2026 391 Does the Borrower Have a History of Receiving Rental Income
      From the Subject Property? Transaction Type Documentation Requirements No Purchase
      Form 1007 or Form 1025, as applicable, and copies of the current lease agreement(s)
      if transferred to the borrower. If the property is not currently rented or if
      the existing lease is not being transferred to the borrower, then lease agreements
      are not required and Form 1007 or Form 1025 may be used. If there is a lease
      on the property that is being transferred to the borrower, see B2-1.5-03, Legal
      Requirements B7-2-05, Title Exceptions and Impediments, for additional information.
      No Reﬁnance Form 1007 or Form 1025, as applicable, and copies of the current
      lease agreement(s). Note: All references in this table to lease agreements and
      Form 1007 or Form 1025 must comply with the requirements in Lease Agreements,
      Form 1007, or Form 1025. If the borrower is not using any rental income from
      the subject property to qualify, the gross monthly rent must still be documented
      for lender reporting purposes. See Reporting of Gross Monthly Rent below for
      details. Documenting Rental Income from Property Other Than the Subject Property
      When the borrower owns property – other than the subject property – that is
      rented, the lender must document the monthly gross (and net) rental income with
      the borrower’s most recent signed federal income tax return that includes Schedule
      1 and Schedule E, the most recent signed federal business income tax return
      for a partnership or S corporation, that includes IRS Form 8825 (when only rental
      income is reported on the K-1), or both of the above, when rental properties
      are reported on both personal and business returns. When ordinary income is
      also reported on Schedule K-1, along with IRS Form 8825 rental income, all documentation
      guidelines noted in B3-3.5-01, Underwriting Factors and Documentation for a
      Self-Employed Borrower or B3-3.4-19, Schedule K-1 Income <25% Ownership apply.
      Note: For rental income reported on Schedule E of personal returns, copies of
      the current lease agreement(s) may be substituted if the borrower can document
      a qualifying exception. See Reconciling Partial or No Rental History on Tax
      Returns (Schedule E Only) below and Calculating Monthly Qualifying Rental Income
      (or Loss). Published May 6, 2026 392 Reconciling Partial or No Rental History
      on Tax Returns (Schedule E Only) When rental income is being used to qualify,
      the lender must consider whether the income reported on the most recent signed
      personal federal income tax returns is appropriate to use in underwriting. To
      determine qualifying rental income, in those scenarios where the borrower has
      only a partial rental history on the personal federal tax returns, the lender
      must determine the period of time the rental property was in service (that is,
      rented, with the borrower receiving rental income from that property). If the
      borrower is able to document (per the table below) that the rental property
      was not in service the previous tax year, or was in service for only a portion
      of the previous tax year, the lender may determine qualifying rental income
      by using one of the following options: Schedule E income and expenses, and annualizing
      the income (or loss) calculation, or fully executed lease agreement(s) to determine
      the gross rental income to be used in the net rental income (or loss) calculation.
      If ... Then ... the property was acquired or placed into service during the
      most recent tax ﬁling year, • the lender must conﬁrm the purchase date using
      the settlement statement or other documentation, and • Fair Rental Days on Schedule
      E of the most recently ﬁled tax return must conﬁrm partial year rental income.
      the property was acquired or placed into service subsequent to the most recent
      tax ﬁling year, the lender must conﬁrm the purchase date using the settlement
      statement or other documentation, if applicable. In addition, for properties
      recently converted to an investment property or newly placed in service, obtain
      Schedule E of the most recently ﬁled tax return to conﬁrm no rental income or
      expenses for this property. the property was acquired prior to the most recent
      tax ﬁling year, but the rental property was out of service for an extended period,
      • repair expenses on Schedule E of the most recently ﬁled tax return must reﬂect
      the costs for renovation or rehabilitation. Additional documentation may be
      required to ensure that the expenses support a signiﬁcant renovation that supports
      the amount of time that the rental property was out of service. • Fair Rental
      Days on Schedule E of the most recently ﬁled tax return must conﬁrm the number
      of days that the rental unit was in service, which must support the unit being
      out of service for all or a portion of the year. Published May 6, 2026 393 If
      ... Then ... the lender determines that some other situation warrants an exception
      to use a lease agreement, the lender must provide an explanation and justiﬁcation
      in the loan ﬁle. If the borrower is converting a principal residence to an investment
      property, see B3-6-06, Qualifying Impact of Other Real Estate Owned, for guidance
      in using that rental income to qualify the borrower. Calculating Monthly Qualifying
      Rental Income (or Loss) Rental income must be calculated for each rental property.
      The amount of rental income that may be used to qualify may be restricted depending
      on whether the borrower currently has a housing payment and has a history of
      receiving rental income. A housing payment is the total monthly expense amount
      the borrower(s) is currently making for the primary residence occupied by the
      borrower(s). A housing payment can 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. See B3-6-01,
      General Information on Liabilities and B3-6-05, Monthly Debt Obligations for
      additional information. If not otherwise documented as one of the borrower''s
      existing liabilities, 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, bank statements reﬂecting a payment to an organization
      or individual, cancelled checks or equivalent, or evidence of property taxes
      paid. The following tables provide restrictions on the amount of rental income
      that may be used for qualifying purposes based on various borrower and rental
      income scenarios. Subject Property Property Type Current Primary Housing Payment
      Property Management Experience Restrictions on Rental Income Used to Qualify
      Published May 6, 2026 394 Subject Property 2-4 Unit Primary Residence Yes Yes
      Rental income used in qualifying has no restrictions No Rental income used in
      qualifying may not exceed the PITIA No NA No rental income can be used in qualifying
      1 Unit Primary Residence with ADU Yes Yes Rental income used in qualifying is
      limited to 30% of the total qualifying income No Rental income used in qualifying
      is limited to 30% of the total qualifying income and cannot exceed PITIA No
      NA No rental income can be used in qualifying 1-4 Unit Investment Property Yes
      Yes Rental income used in qualifying has no restrictions No Rental income can
      only be used to oﬀset the PITIA of the related property No NA No rental income
      can be used in qualifying Non-Subject Property Property Type Current Primary
      Housing Expense Property Management Experience Restrictions on Rental Income
      Used to Qualify Published May 6, 2026 395 Non-Subject Property 2-4 Unit Primary
      Residence Yes Yes Rental income used in qualifying has no restrictions No Rental
      income used in qualifying may not exceed the PITIA 1-4 Unit Investment Property
      - new or newly placed in service (includes departing residence) Yes Yes Rental
      income used in qualifying has no restrictions No Rental income can only be used
      to oﬀset the PITIA of the related property No NA No rental income can be used
      in qualifying 1-4 Unit Investment Property - existing rental (one year of receiving
      rental income) Yes Yes Rental income used in qualifying has no restrictions
      No See Treatment of the Income (or Loss) below for how to apply rental income.
      Note: Rental income reported on IRS Form 8825 of federal business tax returns
      is reported as self- employment income. The lender must establish a history
      of property management experience by obtaining one of the following: The borrower’s
      most recent signed federal income tax return, including Schedules 1 and E. Schedule
      E should reﬂect rental income received for any property and Fair Rental Days
      of 365; If the property has been owned for at least one year, but there are
      less than 365 Fair Rental Days on Schedule E a current signed lease agreement
      may be used to supplement the federal income tax return; or two years of the
      most recent federal income tax returns reﬂecting rental income received may
      be obtained to document that the property was in service for the full year (for
      example: a short-term rental income for more than one year, but the fair rental
      days are less than 365 in each year). A current signed lease may be used to
      supplement a federal income tax return if the property was out of service for
      any time period in the prior year. Schedule E must support this by reﬂecting
      a reduced number of days in use and related repair costs. See Lease Agreements,
      Form 1007, or Form 1025 below for further information. Published May 6, 2026
      396 Method for Calculating the Income The method for calculating rental income
      (or loss) for qualifying purposes is dependent upon the documentation that is
      being used (that is, Schedule E or a current fully executed lease agreement).
      The following table provide examples of diﬀerent methods. If the supporting
      document is... And the property was in service... The lender must... federal
      tax returns, Schedule E for a full or partial year average the annual rental
      income or loss over 12 months. a current fully executed lease agreement supporting
      monthly rental amount, and federal tax returns, including Schedule E less than
      the full year, and the borrower qualiﬁes for a documented exception to use a
      lease agreement to support monthly rental income average the rental income (or
      loss) over the number of months the borrower used the property as a rental unit.
      When Schedule E is used to calculate qualifying rental income, the lender must
      add back any listed depreciation, interest, homeowners’ association dues, taxes,
      or insurance expenses to the borrower’s cash ﬂow. Non-recurring property expenses
      may be added back, if documented accordingly. See General Requirements for Documenting
      Rental Income (Subject and Non-Subject Property), Reconciling Partial or No
      Rental History on Tax Returns (Schedule E Only) and Treatment of the Income
      (or Loss) for further instructions. Lease Agreements, Form 1007, or Form 1025
      When current lease agreements or market rents reported on Form 1007 or Form
      1025 are used, the lender must calculate the rental income by multiplying the
      gross monthly rent(s) by 75%. (This is referred to as "Monthly Market Rent"
      on the Form 1007.) The remaining 25% of the gross rent will be absorbed by vacancy
      losses and ongoing maintenance expenses. When using a lease agreement, the lease
      agreement amount must be supported by Form 1007 or Form 1025, as applicable,
      or evidence the terms of the lease have gone into eﬀect. Evidence must include
      a minimum of: two months consecutive bank statements or electronic transfers
      of rental payments for existing lease agreements, or copies of the security
      deposit and ﬁrst full month''s rent check with proof of deposit for newly executed
      agreements. See Treatment of the Income (or Loss) below for further instructions.
      Published May 6, 2026 397 Treatment of the Income (or Loss) The treatment and
      amount of monthly qualifying rental income (described above in Calculating Monthly
      Qualifying Rental Income (or Loss)) used in the calculation of the borrower''s
      total debt-to-income ratio — varies depending on whether the borrower occupies
      the rental property as their principal residence. If the rental income relates
      to the borrower’s principal residence: The monthly qualifying rental income
      (as deﬁned above) must be added to the borrower’s total monthly income. (The
      income is not netted against the PITIA of the property.) The full amount of
      the mortgage payment (PITIA) must be included in the borrower’s total monthly
      obligations when calculating the debt-to-income ratio. If the rental income
      (or loss) relates to a property other than the borrower''s principal residence:
      If the monthly qualifying rental income minus the full PITIA is positive, it
      must be added to the borrower’s total monthly income (subject to the limits
      in Calculating Monthly Qualifying Rental Income (or Loss)). If the monthly qualifying
      rental income minus PITIA is negative, the monthly net rental loss must be added
      to the borrower’s total monthly obligations. The full PITIA for the rental property
      is factored into the amount of the net rental income (or loss); therefore, it
      should not be counted as a monthly obligation. The full monthly payment for
      the borrower''s principal residence (full PITIA or monthly rent) must be counted
      as a monthly obligation. Note: When a borrower owns multiple rental properties,
      the rental income for all non-subject properties is ﬁrst calculated for each
      property, then aggregated. The aggregate total of the income (or loss) is then
      added to the borrower''s total monthly income or included in their monthly obligations,
      as applicable. Oﬀsetting Monthly Obligations for Rental Property Reported through
      a Partnership or an S Corporation If gross rents and related expenses are reported
      through a partnership or S corporation, then any rental income (or loss) must
      be evaluated as self-employment income regardless of the borrower''s percentage
      of ownership interest or whether the borrower is personally obligated on the
      mortgage debt. However, if the related property is reported on the most recent
      federal business tax return and it''s clear the business is responsible for
      the payment, the full PITIA can be excluded from the DTI calculation. When rental
      property is reported through a partnership or an S corporation, but the borrower
      is personally obligated on the mortgage, the property must be included in the
      count of ﬁnanced properties and is subject to the requirements for multiple
      ﬁnanced properties as indicated in B2-2-03, Multiple Financed Properties for
      the Same Borrower. See also B3-3.7-01, Analyzing Partnership Returns for a Partnership
      or LLC and B3-3.7-02, Analyzing Returns for an S Corporation. Published May
      6, 2026 398 Rental Income Calculation Tools 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 Calculator, for additional
      information. Reporting of Gross Monthly Rent Eligible rents on the subject property
      (gross monthly rent) must be reported to Fannie Mae in the loan delivery data
      for all two- to four-unit principal residence properties and investment properties,
      regardless of whether the borrower is using rental income to qualify for the
      loan. If the borrower is using rental income from the subject property to qualify
      for the loan, all of the applicable requirements above must be followed to document
      and calculate the income. If the borrower is not using any rental income from
      the subject property to qualify, gross monthly rent must be documented only
      for lender reporting purposes. The borrower can provide one of the sources listed
      above, or may provide one of the following sources (listed in order of preference):
      the appraisal report for a one-unit investment property or two- to four-unit
      property, or Single-Family Comparable Rent Schedule (Form 1007), provided neither
      the applicable appraisal nor Form 1007 is dated 12 months or more prior to the
      date of the note; if the property is not currently rented, the lender may use
      the opinion of market rents provided by the appraiser; or if an appraisal or
      Form 1007 is not required for the transaction, the lender may rely upon either
      a signed lease from the borrower or may obtain a statement from the borrower
      of the gross monthly rent being charged (or to be charged) for the property.
      The monthly rental amounts must be stated separately for each unit in a two-
      to four-unit property. The disclosure from the borrower must be in the form
      of one of the following: a written statement from the borrower, or an addition
      to the Form 1003. The lender must retain the documentation in the loan ﬁle that
      was relied upon to determine the amount of eligible rent reported. Uniform Appraisal
      Dataset (UAD) 3.6 Policy Lenders using UAD 3.6 must follow the requirements
      in the UAD 3.6 Policy Supplement . Recent Related Announcements Published May
      6, 2026 399 The table below provides references to recently issued Announcements
      that are related to this topic. Announcements Issue Date Announcement SEL-2025-08
      October 08, 2025 Announcement SEL-2025-04 June 04, 2025 Announcement SEL-2025-02
      April 02, 2025 Announcement SEL-2023-09 October 04, 2023 Announcement SEL-2022-04
      May 04, 2022 Announcement SEL-2020-03 June 03, 2020 Announcement SEL-2020-01
      February 05, 2020 Announcement SEL-2019-08 October 02, 2019 Announcement SEL-2019-05
      June 05, 2019 Announcement-SEL-2018-06 August 07, 2018 Chapter B3-4, Asset Assessment
      Introduction This chapter explains asset assessment for qualifying, underwriting,
      and documentation purposes. Section B3-4.1, General Asset Requirements Published
      May 6, 2026 400'
  judgment: false
