Freddie Mac Guidelines: Rental Income Qualification

Bulletin 2025-7

, which announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers may submit to the Uniform Collateral Data Portal

®

appraisal reports that use UAD 3.6 before the mandatory effective November 2, 2026 version of this section.

This section contains requirements and guidance for the calculation, documentation, analysis, history and determination of stable monthly net rental income when used to qualify the Borrower.

General eligibility requirements

Rental income from subject 1- to 4-unit Investment Property

Rental income from non-subject investment property

Rental income from conversion of a Primary Residence to an Investment Property

Rental income from subject 2- to 4-unit Primary Residence

Rental income from non-subject 2- to 4-unit Primary Residence

Rental income from an ADU on a subject 1-unit Primary Residence

Rental income from a live-in aide residing in a 1-unit Primary Residence

Other provisions related to rental income

(a)

General eligibility requirements

Stable monthly rental income must be generated from acceptable and verifiable sources and must be reasonably expected to continue for at least the next three years. For each income source used to qualify the Borrower, the Seller must determine that both the source and the amount of the income are stable. Refer to

Section 5301.1

for additional information about income stability and continuance.

(i)

Rental income eligibility

Rental income generated from the following property and occupancy types may be considered when determining the stable monthly income:

1-unit Primary Residence:

Rental income from a live-in aide, regardless of the type of housing provided, or

Rental income from an ADU

2- to 4-unit Primary Residence (rental income is eligible from units that are not occupied by the Borrower)

Subject 1- to 4-unit Investment Property

Non-subject investment property owned by the Borrower (not restricted to residential property (e.g., commercial permitted))

Rental income generated from the Borrower’s second home may not be used as stable monthly income.

(ii)

Rental income generated from ADUs

When determining stable monthly income, rental income generated from an ADU may be considered for:

Subject 1-unit Investment Property

In addition, rental income generated from one or more ADUs on a non-subject investment property may be considered when determining stable monthly income.

Section 5306.1(g)

below for requirements related to rental income eligibility for a 1-unit Primary Residence with an ADU. Refer to

Section 4501.6(a)

for requirements related to rental income eligibility for a 1-unit Primary Residence with an ADU for Home Possible

®

Mortgages.

Section 5601.2

for the property eligibility and appraisal requirements related to the subject property with an ADU.

(b)

Rental income from subject 1- to 4-unit Investment Property

(i)

Eligibility

Rental income generated from a subject 1- to 4-unit Investment Property is eligible for use in qualifying the Borrower provided it meets the requirements of this subsection (b).

(ii)

Rental income documentation and calculation requirements

The following tables contain requirements for establishing net rental income from the subject 1- to 4-unit Investment Property.

Rental income from subject 1- to 4-unit Investment Property

The existing lease, when available

The Seller must make reasonable efforts to determine lease availability, including review of the appraisal report, comparable rent data, purchase contract, a discussion with the Borrower and/or any other applicable and reasonable method

The existing lease(s) must be current and fully executed in the property seller’s name as the landlord

Form 72, Small Residential Income Property Appraisal Report

, or

Form 1000, Single-Family Comparable Rent Schedule

, as applicable

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

When using the lease, whether the current market rents reasonably support the gross monthly lease income.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Use 75% of:

Gross monthly rent from the lease when the lease is available, or

Form 72

or

Form 1000

, as applicable, when the lease is not available

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

To use rental income to qualify:

Each Borrower must currently own a Primary Residence or have a current rental housing payment documented in accordance with

Section 5401.1(d)

.

Exception:

For Borrowers currently residing in the same property, at least one Borrower must own a Primary Residence or have a current rental housing payment to use rental income to qualify.

The

full amount

of the net rental income can be used only when documentation in the Mortgage file demonstrates that at least one Borrower has a minimum of one year of investment property management experience

If no Borrower has at least one year of investment property management experience, net rental income is limited to the

amount that offsets

the principal, interest, taxes and insurance (PITI) and, when applicable, mortgage insurance premiums, leasehold payments, homeowners association (HOA) dues (excluding unit utility charges) and payments on secondary financing on the subject Investment Property.

Use of net rental income in the debt payment-to-income (DTI) calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

Rental income from subject 1- to 4-unit Investment Property purchased or placed in service in the current calendar year

Income documentation

Purchase date or conversion date, as applicable, must be documented

Form 72

or

, as applicable

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

or

, as applicable

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

When using the lease, whether the current market rents reasonably support the gross monthly lease income.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

Rental income from subject 1- to 4-unit Investment Property owned in the prior calendar year

Income documentation

The Borrower’s complete federal income tax returns (Internal Revenue Service (IRS) Form 1040), including Schedule E for the most recent year as described in

Section 5302.4(b)

.

Form 72

or

, as applicable

If the property was purchased or converted to a rental property in the prior calendar year, the purchase or conversion date, as applicable, must be documented.

When the requirements are met for using

a lease in lieu of Schedule E

to calculate net rental income as described in the row labeled “Calculation of net rental income using lease”, the following

additional documentation

is required:

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

or

, as applicable

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross rents reported on Schedule E or the gross monthly lease income, as applicable.

If the current market rents do not reasonably support the gross rents reported on Schedule E or the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation of net rental income using Schedule E

Net rental income must be calculated using Schedule E except when the requirements to use a lease as described in the row labeled “Calculation of net rental income using lease” are met.

Step 1:

Calculate the total net rental income from Schedule E by deducting expenses from rents received. The following expenses may be added back:

Insurance

Mortgage interest paid to banks, etc.

Depreciation and/or depletion

One-time losses (e.g., casualty loss) if documented

Use

Form 92, Net Rental Income Calculations – Schedule E

, or similar alternative form.

Step 2:

Determine the applicable number of months for averaging as follows:

If the property was owned as a rental property during the entire calendar year, the rental income used in qualifying must be annualized by dividing by 12.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time in the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

If the property was purchased or converted to a rental property later in the prior calendar year, the rental income used for qualifying must be based on the purchase or conversion date, as applicable.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time after the purchase or conversion, as applicable, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

Step 3:

Calculate the qualifying monthly net rental income as follows:

Divide the total net rental income calculated in Step 1 by the applicable number of months determined in Step 2.

Calculation of net rental income using lease

Lease may be used to calculate the net rental income only when either of the following applies:

The most recent tax return filed with the IRS does not include the subject property on Schedule E (e.g., the tax return for the year during which the property was purchased or converted is on extension)

The property was out of service for a period of time during the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

(c)

Rental income from non-subject investment property

(i)

Eligibility

Rental income generated from non-subject investment property is eligible provided it meets the requirements of this subsection (c).

(ii)

Rental income documentation and calculation requirements

The following tables contain requirements for establishing net rental income from a non-subject investment property.

Rental income from non-subject investment property purchased or placed in service in the current calendar year

Income documentation

Purchase date or conversion date, as applicable, must be documented

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

or

, as applicable

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Exception:

For a property purchased on or up to 45 days before the Note Date of the subject transaction, when the property is not yet rented, a lease is not required and market rent may be documented using

Form 72

or

Form 1000

, as applicable.

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross monthly lease income.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation

Use 75% of the gross monthly rent from the lease.

Exception:

When the property was purchased on or up to 45 days before the Note Date of the subject transaction and is not yet rented, use 75% of the gross monthly market rent from

Form 72

or

Form 1000

, as applicable.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Limitations on use of rental income

When the property was purchased on or up to 45 days before the Note Date of the subject transaction and is not yet rented:

To use rental income to qualify, each Borrower must currently own a Primary Residence or have a current rental housing payment documented in accordance with

Section 5401.1(a)

.

Exception:

For Borrowers currently residing in the same property, at least one Borrower must own a Primary Residence or have a current rental housing payment to use rental income to qualify.

The

full amount

of the net rental income can be used only when documentation in the Mortgage file demonstrates that at least one Borrower has a minimum of one year of investment property management experience

If no Borrower has at least one year of investment property management experience, net rental income is limited to the

amount that offsets

the PITI and, when applicable, mortgage insurance premiums, leasehold payments, HOA dues (excluding unit utility charges) and payments on secondary financing on the non-subject Investment Property

Use of net rental income in the DTI calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

For multiple non-subject investment properties, apply the calculation above to each property, and:

If the combined result is positive, add it to the stable monthly income

If the combined result is negative, add it to the monthly liabilities

Rental income from non-subject investment property owned in the prior calendar year

Income documentation

The Borrower’s complete federal income tax returns (IRS Form 1040), including Schedule E for the most recent year as described in

Section 5302.4(b)

If the property was purchased or converted to a rental property in the prior calendar year, the purchase or conversion date, as applicable, must be documented

When the requirements are met for using a

lease in lieu of Schedule E

to calculate net rental income as described in the row labeled “Calculation of net rental income using a lease”, the following

additional documentation

is required:

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

or

Form 1000

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross rents reported on Schedule E or the gross monthly lease income, if applicable.

If the current market rents do not reasonably support the gross rents reported on Schedule E or the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation of rental income using Schedule E

Net rental income must be calculated using Schedule E except when the requirements to use a lease as described in the row labeled “Calculation of net rental income using lease” are met.

Step 1:

Calculate the total net rental income from Schedule E by deducting expenses from rents received. The following expenses may be added back:

Depreciation and/or depletion

One-time losses (e.g., casualty loss) if documented

Form 92

or similar alternative form.

• These expenses may be added back if they are included in the monthly payment amount used to establish the DTI ratio.

Step 2:

Determine the applicable number of months for averaging as follows:

If the property was owned as a rental property during the entire calendar year, the rental income used in qualifying must be annualized by dividing by 12.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E provided that the property was out of service for a period of time in the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses costs on Schedule E.

If the property was purchased or converted to a rental property later in the prior calendar year, the rental income used for qualifying must be based on the purchase or conversion date.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time after the purchase or conversion, as applicable, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

Step 3:

Calculate the qualifying monthly net rental income as follows:

Divide the total net rental income calculated in Step 1 by the applicable number of months determined in Step 2

Calculation of net rental income using lease

Lease may be used to calculate the net rental income only when either of the following applies:

The most recent tax return filed with the IRS does not include the subject property on Schedule E (e.g., the tax return for the year during which the property was purchased or converted is on extension)

The property was out of service for a period of time during the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

For multiple non-subject investment properties, apply the calculation above to each property, and:

If the combined result is positive, add it to the stable monthly income

If the combined result is negative, add it to the monthly liabilities

(d)

Rental income from conversion of a Primary Residence to an Investment Property

(i)

Eligibility

Rental income generated from the conversion of a Primary Residence to an Investment Property is eligible provided it meets the requirements of this subsection (d).

(ii)

Rental income documentation and calculation requirements

The following table contains requirements for establishing net rental income from the conversion of a Primary Residence to an Investment Property.

Rental income from conversion of a Primary Residence to an Investment Property

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

or

Form 1000

Documentation verifying receipt of two months rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Forms 72

and

1000

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross rents reported on Schedule E or the gross monthly lease income, if applicable

If the current market rents do not reasonably support the gross rents reported on Schedule E or the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Limitations on use of rental income

When using net rental income to qualify:

The

full amount

of the net rental income can be used only when documentation in the Mortgage file demonstrates that at least one Borrower has a minimum of one year of investment property management experience

If no Borrower has at least one year of investment property management experience, net rental income is limited to the

amount that offsets

the PITI and, when applicable, mortgage insurance premiums, leasehold payments, HOA dues (excluding unit utility charges) and payments on secondary financing on the converted Primary Residence

Use of net rental income in the DTI calculation

Subtract the monthly payment amount (as described in

) from the net rental income:

If the result is positive, add it to the stable monthly income

If the result is negative, add it to the monthly liabilities

For multiple non-subject investment properties, apply the calculation above to each property, and:

If the combined result is positive, add it to the stable monthly income

If the combined result is negative, add it to the monthly liabilities

(e)

Rental income from subject 2- to 4-unit Primary Residence

(i)

Eligibility

Rental income generated from units not occupied by the Borrower for a subject 2- to 4-unit Primary Residence is eligible provided it meets the requirements of this subsection (e).

(ii)

Rental income documentation and calculation requirements

The following tables contain requirements for establishing net rental income from a subject 2- to 4-unit Primary Residence.

Rental income from subject 2- to 4-unit Primary Residence

The existing lease, when available

The Seller must make reasonable efforts to determine lease availability, including review of the appraisal report, comparable rent data, purchase contract, a discussion with the Borrower and/or any other applicable and reasonable method

The existing lease must be current and fully executed in the property seller’s name as the landlord

Form 72

Comparable rent data analysis when using

Form 72

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

When using the lease, whether the current market rents reasonably support the gross monthly lease income.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Use 75% of:

Gross monthly rent from the lease, when the lease is available, or

Form 72

when the lease is not available

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI ratio calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

Rental income from subject 2- to 4-unit Primary Residence purchased or placed in service in the current calendar year

Income documentation

Purchase date or conversion date, as applicable, must be documented

Lease(s)

The lease(s) must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Form 72

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross monthly lease income, if applicable.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

Rental income from subject 2- to 4-unit Primary Residence owned in the prior calendar year

Income documentation

The Borrower’s complete federal income tax returns (IRS Form 1040), including the Schedule E for the most recent year as described in

Section 5302.4(b)

.

Form 72

If the property was purchased or unit(s) not occupied by the Borrower were converted to a rental property in the prior calendar year, the purchase or conversion date, as applicable, must be documented

When the requirements are met for using a

lease in lieu of Schedule E

to calculate net rental income as described in the row labeled “Calculation of net rental income using lease”, the following

additional documentation

is required:

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Form 72

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross rents reported on Schedule E or the gross monthly lease income, as applicable.

If the current market rents do not reasonably support the gross rents reported on Schedule E or the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation of net rental income using Schedule E

Net rental income must be calculated using Schedule E except when the requirements to use a lease as described in the row labeled “Calculation of net rental income using lease” are met.

Step 1:

Calculate the total net rental income from Schedule E by deducting expenses from rents received. The following expenses may be added back:

Insurance

Mortgage interest paid to banks, etc.

Depreciation and/or depletion

One-time losses (e.g., casualty loss) if documented

Form 92

or similar alternative form

Step 2:

Determine the applicable number of months for averaging as follows:

If the property was owned as a rental property during the entire calendar year, the rental income used in qualifying must be annualized by dividing by 12.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time in the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

If the property was purchased or converted to a rental property later in the prior calendar year, the rental income used for qualifying must be based on the purchase or conversion date, as applicable.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time after the purchase or conversion, as applicable, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

Step 3:

Calculate the qualifying monthly net rental income as follows:

Divide the total net rental income calculated in Step 1 by the applicable number of months determined in Step 2.

Calculation of net rental income using lease

Lease may be used to calculate the net rental income only when either of the following applies:

The most recent tax return filed with the IRS does not include the subject property on Schedule E (e.g., the tax return for the year during which the property was purchased or converted is on extension)

The property was out of service for a period of time during the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI ratio calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income.

The net rental income may be added to the stable monthly income.

(f)

Rental income from non-subject 2- to 4-unit Primary Residence

(i)

Eligibility

Rental income generated from units not occupied by the Borrower for a non-subject 2- to 4-unit Primary Residence is eligible provided it meets the requirements of this subsection (f).

(ii)

Rental income documentation and calculation requirements

The following tables contain requirements for establishing net rental income from a non-subject 2- to 4-unit Primary Residence.

Rental income from non-subject 2- to 4-unit Primary Residence purchased or placed in service in the current calendar year

Income documentation

Purchase date or conversion date, as applicable, must be documented

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Exception:

For a property purchased on or up to 45 days before the Note Date for the subject transaction, market rent may be documented using

Form 72

if the property is not yet rented.

Comparable rent data analysis when using

Form 72

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

When using the lease, whether the current market rents reasonably support the gross monthly lease income.

If the current market rents do not reasonably support the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation

Use 75% of the gross monthly rent from the lease.

Exception:

Use 75% of the gross monthly market rent from

Form 72

when the property was purchased on or up to 45 days before the Note Date for the subject transaction and is not yet rented.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

Rental income from non-subject 2- to 4-unit Primary Residence owned in the prior calendar year

Income documentation

The Borrower’s complete federal income tax returns (IRS Form 1040), including the Schedule E for the most recent year as described in

Section 5302.4(b)

If the property was purchased or unit(s) not occupied by the Borrower were converted to a rental property in the prior calendar year, the purchase or conversion date, as applicable, must be documented

When the requirements are met for using a

lease in lieu of Schedule E

to calculate net rental income as described in the row labeled “Calculation of net rental income using lease”, the following

additional documentation

is required:

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

Income reflected on the lease must be supported by one of the following:

Form 72

Documentation verifying receipt of two months of rental payments or receipt of the security deposit and the first month’s rental payment.

Documentation must include one of the following:

Evidence that the payments were cashed or deposited into the Borrower’s depository account at a financial institution (e.g., bank statements evidencing deposit or canceled checks)

Evidence that the payments were transferred into a third-party money transfer application account that is owned by the Borrower (e.g., a screenshot or monthly account statement evidencing transfer of the payments and the Borrower’s name, a screenshot that evidences transfer of the payments and ties the account to the Borrowers bank account)

For security deposits, evidence of deposit into an escrow or business account established for this purpose, or evidence payment was cashed or deposited into the Borrower’s personal depository account at a financial institution

Comparable rent data analysis when using

Form 72

The Seller’s analysis of the rental information must include, at a minimum, the following factors:

Rental market viability and income producing potential for subject property

Whether the current market rents reasonably support the gross rents reported on Schedule E or the gross monthly lease income, as applicable.

If the current market rents do not reasonably support the gross rents reported on Schedule E or the gross monthly lease income, the Seller must:

Determine if additional documentation is necessary to support income stability, and

Provide a written analysis explaining the discrepancy and justifying the determination that the rental income used to qualify the Borrower is stable and reasonably expected to continue

Calculation of net rental income using Schedule E

Net rental income must be calculated using Schedule E except when the requirements to use a lease as described in the row labeled “Calculation of net rental income using lease” are met.

Step 1:

Calculate the total net rental income from Schedule E by deducting expenses from rents received. The following expenses may be added back:

Depreciation and/or depletion

One-time losses (e.g., casualty loss) if documented

Form 92

or similar alternative form.

• These expenses may be added back if they are included in the monthly payment amount used to establish the DTI ratio.

Step 2:

Determine the applicable number of months for averaging as follows:

If the property was owned as a rental property during the entire calendar year, the rental income used in qualifying must be annualized by dividing by 12.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E provided that the property was out of service for a period of time in the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

If the property was purchased or converted to a rental property later in the prior calendar year, the rental income used for qualifying must be based on the purchase or conversion date.

Exception:

The qualifying income may be established based on the number of days in service on Schedule E, provided that the property was out of service for a period of time after the purchase or conversion, as applicable, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E.

Step 3:

Calculate the qualifying monthly net rental income as follows:

Divide the total net rental income calculated in Step 1 by the applicable number of months determined in Step 2.

Calculation of net rental income using lease

Lease may be used to calculate the net rental income only when either of the following applies:

The most recent tax return filed with the IRS does not include the subject property on Schedule E (e.g., the tax return for the year during which the property was purchased or converted is on extension)

The property was out of service for a period of time during the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Use of net rental income in the DTI calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

(g)

Rental income from an ADU on a subject 1-unit Primary Residence

(i)

Eligibility

Rental income generated from an ADU on a subject 1-unit Primary Residence that does not meet the requirements in

Section 5306.1(h)

below for live-in aides or

4501.6(a)

for Home Possible Mortgages is eligible provided it meets the requirements of this subsection (g).

The Mortgage must be a purchase transaction or “no cash-out” refinance Mortgage.

(ii)

Rental income documentation and calculation requirements

The following table contains requirements for establishing net rental income from an ADU on a subject 1-unit Primary Residence.

Rental income from an ADU on a subject 1-unit Primary Residence

The existing lease, when available

The Seller must make reasonable efforts to determine lease availability, including review of the appraisal, comparable rent data, purchase contract, a discussion with the Borrower and/or any other applicable and reasonable method

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

ADU rental analysis, which must support the income reflected on the lease

The ADU rental analysis must include a minimum of three comparable rentals to support the opinion of market rent applicable to the ADU. At least one of the comparable rentals must include a rented ADU to support the market rent for ADUs. The appraiser may provide this rental analysis data in narrative form within the appraisal report or by attaching a separate rent schedule to the appraisal report.

Section 5601.2

for additional requirements for a property with an ADU.

Use 75% of:

Gross monthly rent from the lease when the lease is available, or

Gross monthly market rent from the ADU rental analysis when the lease is not available

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Limitations on use of rental income

The amount of net rental income used for qualifying must not exceed 30% of the total stable monthly income used to qualify the Borrower for the Mortgage.

Use of net rental income in the DTI ratio calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

Rental income from an ADU on a subject 1-unit Primary Residence

“No cash-out” refinance Mortgage

Income documentation

The Borrower’s complete federal income tax returns (IRS Form 1040), including Schedule E, for the most recent year, as described in

Section 5302.4(b)

.

When the requirements are met for using a lease

in lieu of Schedule E

to calculate net rental income as described in the row labeled “Calculation of net rental income using lease”, the following

additional documentation

is required:

Lease

The lease must be current and fully executed

For newly executed leases, the first rental payment due date must be no later than the first payment due date of the subject Mortgage

ADU rental analysis, which must support the income reflected on the lease.

The ADU rental analysis must include a minimum of three comparable rentals to support the opinion of market rent applicable to the ADU. At least one of the comparable rentals must include a rented ADU to support the market rent for ADUs. The appraiser may provide this rental analysis data in narrative form within the appraisal report or by attaching a separate rent schedule to the appraisal report.

Section 5601.2

for additional requirements for a property with an ADU.

Calculation of net rental income using Schedule E

Net rental income must be calculated using Schedule E except when the requirements to use a lease as described in the row labeled “Calculation of net rental income using lease” are met.

Calculate the net rental income from Schedule E using

Form 92

or a similar alternative form.

Calculation of net rental income using lease

Lease may be used to calculate the net rental income only when one of the following applies:

The property was out of service for a period of time during the prior year, and the Mortgage file contains documentation of significant repairs or renovation, as supported by a reduced number of days in use

and

repair/renovation expenses on Schedule E

The property was purchased later in the calendar year and Schedule E supports this by a reduced number of days in use

The property was placed in service in the current calendar year as documented in the Mortgage file

Use 75% of the gross monthly rent from the lease.

Note: The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses.

Limitations on use of rental income

The amount of net rental income used for qualifying must not exceed 30% of the total stable monthly income used to qualify the Borrower for the Mortgage.

Use of net rental income in the DTI ratio calculation

The monthly housing expense (as described in

Section 5401.1

) must be calculated without the use of rental income

The net rental income may be added to the stable monthly income

(iii)

Landlord education

For purchase transactions, at least one qualifying Borrower must participate in a landlord education program prior to the Note Date, or the Effective Date of Permanent Financing for Construction to Permanent Mortgages and Renovation Mortgages.

Landlord education must not be provided by an interested party to the transaction, the originating lender or the Seller. A copy of a certificate evidencing successful completion of the landlord education program must be retained in the Mortgage file.

Exception:

Landlord education is not required if at least one Borrower has a minimum of one-year investment property management experience or ADU rental management experience.

(iv)

Special delivery requirements for Mortgages with rental income from an ADU

Investor Feature Identifier

valid value “J66” for each Mortgage where rental income from an ADU on a 1-unit Primary Residence is used to qualify the Borrower. See

Section 6302.8(a)

for more information.

(h)

Rental income from live-in aide residing in a 1-unit Primary Residence

(i)

Eligibility

Rental income generated from the Borrower’s 1-unit Primary Residence, including rental income from an ADU may be used to qualify a Borrower with a disability provided the rental income is from a live-in aide and the requirements of this subsection (h) are met. Typically, a live-in aide will receive room and board payments through Medicaid waiver funds from which rental payments are made to the Borrower.

(ii)

Rental income documentation and calculation requirements

The following table contains requirements for establishing net rental income from a live-in aide residing in a subject 1-unit Primary Residence.

Rental income from a live-in aide residing in a 1-unit Primary Residence

Income documentation

The Seller must include in the Mortgage file evidence that the Borrower has received stable rental income from a live-in aide for the most recent 12 months.

Limitations on the use of rental income

The amount of net rental income used for qualifying must not exceed 30% of the total stable monthly income used to qualify the Borrower for the Mortgage.

Section 4501.6(a)

for use of rental income generated from the Borrower’s 1-unit Primary Residence for a Home Possible Mortgage.

(i)

Other provisions related to rental income

(i)

IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation

Chapter 5304

for the treatment of all rental real estate income or loss reported on IRS Form 8825, which reflects all income and expenses for the rental property and IRS Schedule K-1, which reflects the Borrower’s proportionate share of the net rental income or loss.

Chapter 5304

are applicable regardless of the Borrower’s percentage of ownership interest in the partnership or S corporation and regardless of whether the Borrower is personally obligated on the Note.

(ii)

Delivery requirements for all subject Investment Properties and 2- to 4-unit Primary Residences

Regardless of whether rental income from the subject Investment Property or 2- to 4-unit Primary Residence is being used to qualify the Borrower, the Seller must deliver ULDD Data Point

Property Dwelling Unit Eligible Rent Amount

.

Section 6302.8

for delivery requirements for rental income.

(iii)

Other Guide provisions related to rental income

Refer to the following Guide provisions for additional information related to the rental income topic:

Other Guide provisions related to rental income

Section 3401.2(h)

General requirements for all stable monthly income

Section 5301.1

General requirements for documentation used to verify employment and income

Chapter 5302

General requirements for verifying documents

Section 5102.3

Property eligibility and appraisal requirements

Topic 5600