FNMA RENTAL INCOME: Meaning and Guidelines

FNMA Rental Income
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All FNMA conventional investment property mortgage products and Freddie Mac multifamily primary mortgage products now adhere to the new worksheet on rental income guidelines, per a recent notification issued on August 2nd, 2019. However, FNMA stated that they will introduce new criteria to determine whether or not rental income will be considered qualifying income. These adjustments are intended to help first-time landlords become sustainable homeowners by lowering the barriers to entry for those buying investment homes. In this article, we will also be discussing FNMA rental income departing residence.

Can I Use Rental Income to Qualify for a Mortgage?

Yes, getting a mortgage with rental income is possible if you’re a landlord or an aspiring real estate investor. Your capacity to show proof of income, or in the case of a new rental, proof of the property’s future income, will determine whether or not they really do so. When making a judgment, lenders must follow a set of certain regulations.

The application process for a mortgage with rental income is not significantly different from that without rental income. However, be prepared to undergo more screening and submit additional proof of your actual or projected rental income.

FNMA Rental Income Guidelines

FNMA has established federal guidelines for assessing whether or not rental income will be considered qualifying income. Modifications are being made to encourage long-term house ownership for investors who plan to buy a property but have no experience in property management. 

However, a primary house with two or more units is likewise subject to this restriction. The new FNMA regulations and guidelines for rental income have been implemented to deal with potential threats like occupancy fraud. As stated in its mission statement, FNMA is committed to ensuring the long-term success of the American dream of home ownership.

Furthermore, the new FNMA guidelines for rental income illustrate how much of a borrower’s income can be counted toward the down payment on a primary house or investment property with one to four units. Lenders should think about these things.

  1. Previous rental property ownership and experience by the borrowers are not required for any amount of rental revenue to be considered “substantial.”
  2. If the borrower has a primary residence, either as a homeowner or a renter
  3. If the borrower has been receiving rental income for at least a year or if they have shown experience managing properties, they may qualify.

As long as you have a one-year history of collecting rental revenue, you may use as much of the positive rental income reflected on your financial documents (tax returns or lease agreement) as the FNMA guidelines suggest.

How Do You Factor Rental Income?

It makes sense that property in a good location that is well kept and sold at a fair price is a good way to make money. The property keeps its value and brings in money for the owner while it is rented out. Furthermore, rental income is thought to be one of the safest and easiest ways to make money, but there are many things you should look at to get the most out of it. 

You need to be able to compute your rental yields before you can start looking at the major factors of your rental income. Simply said, rental yield is the property’s income after expenses divided by its market value. If you know your property’s yield, you can more precisely predict your rental income.

Fnma Rental Income Worksheet 2019

Your annual rent charge must be added up using the 2019 FNMA worksheet in order to get your gross rental income. To get an approximate annual rate, divide the property’s worth by a year. Finally, the gross rental yield is calculated by multiplying the monthly rent by 100. Having a gross rental income of 3-5% is recommended if your home is located in a metropolitan location and you want to maximize your investment by renting it out.

Furthermore, lenders can utilize one of FNMA’s four published worksheets to determine the amount of income from a rental property. These worksheets are for your convenience, but you don’t have to use them. Included in the worksheets are:

  •  Fnma Rental Income worksheet: Single-Family Home, 2-to-4-Unit Property
  • Income from Rental Property Worksheet for Businesses 
  • Individual Investment Property Rental Income Worksheet (up to 4 properties)
  • Rental Income Worksheet – Individual Rental Income from Investment Property(s) (up to 10 properties)

Furthermore, for a full FNMA rental income worksheet, you can check this out here.

Fnma Rental Income Departing Residence

You may not understand just how much a borrower’s ability to qualify for a mortgage depends on the calculation of rental income from a departing residence. Knowing where FNMA guidelines diverge for a rental income property scenario will assist you and your team comes up with the best answer for your borrower, even if you don’t face this case very often.

If a home doesn’t sell, the homeowner may opt to start investing in real estate or rent it out. Regardless, it’s not always easy to account for rental income from a departing residence property that has already been vacated. Many people make the assumption that either 100% or 75% of their rental revenue is countable. However, the programs vary in how they deal with this additional revenue.

In addition, popular USDA and conventional FNMA loan programs have wildly varying eligibility requirements, from crediting 100% of rental income in the first year to demanding tax returns for the previous two years of departing residence. There may be further restrictions imposed by the lending institution.

Why Is Fnma’s Rental Income Departing Residence Such a Big Deal?

A departing residence is a mortgage term for a currently occupied home whose owner is planning to relocate. Buying a new house is the most common reason for leaving an existing one. One homeowner’s decision to relocate to another is not necessarily indicative of a trend. Lenders will be interested in how the property is ultimately sold. Here are some options for a departing residence according to FNMA rental income guidelines.

  • Sell the home
  • Keep the title and ownership of a second home
  • Allow family to occupy it
  • Rent the home.

The mortgage payment, taxes, and insurance for the departing residence are no longer considered debts if the home is sold before a new one is bought. However, if the seller receives money from the sale, they can use it toward the cost of the new house.

How Is Rental Income Taxed When You Have a Mortgage?

Any additional relevant income you receive throughout the fiscal year is added to rental income. For instance, to determine your tax liability, take employment income or even interest from savings. This income needs to be reported each year on a self-assessment tax return. But you might be able to deduct some costs from your rental revenue to lower your tax obligation. If you have a mortgage for buy-to-let properties, this also includes some maintenance expenses and letting agent fees.

Therefore, mortgage interest deductions from rental income are no longer available to landlords. Your mortgage interest payments (up to 20% of your total payment) will now be tax deductible. Because of the new regulations, your tax bill may be significantly higher than in the past.

Is Rental Income Offset Against the Mortgage?

Yes, most of the time, lenders use half of the rental income to pay mortgage PIT (Principal, Interest, and Taxes). So, if the rent on your investment property is $3,000 per month and the lender will let you subtract 50%, that is $1,500.

The rental offset method, on the other hand, gives you more for your money because you can use a portion of the rental income to subtract (offset) your rental costs.

Freddie Mac Rental Income

The method by which lenders process rental income has changed as a result of Freddie Mac’s reforms. According to Mortgage News Today, Freddie Mac has announced changes regarding short-term rentals with no lease. According to sources, the changes reflect the popularity of short-term rentals.

Furthermore, according to Frederic Mac’s rental income rules, a borrower’s net rental income can be used up to 30% of their entire net rental income + additional steady monthly income.

A borrower with at least a year of investment property management experience is an exemption. Freddie Mac said the new policy will “promote sustainable and successful homeownership by capping reliance on a newer form of rental income.”

Freddie Mac requires the following to use rental income to refinance a one-to-four-unit investment property, two-to-four-unit principal house, or non-subject investment property.

#1. Short Term Rental Income

(i.e., from a source other than a lease) and the property must have been used to generate rental income for at least two years (as recorded on IRS Schedule E). According to Freddie Mac, the stability of short-term rental income can only be determined by an examination of past volatility.

#2. Long term rental income

Another acceptable verification technique is income on Schedule E or a signed, one-year lease. However, Freddie Mac says when it’s obvious from the documentation that rental revenue is not transient, sellers may assume it’s stable even without a contract.

How Do You Use Rental Income?

Lenders will base the renter’s ability to repay the loan on the tenant’s projected rental income, depending on the lease. Typically, 75% of your stated income is used after deducting the vacancy and maintenance costs of 25%.

Is Rental Income Counted as Earned Income?

Due to the source of the funds, rental income is not considered earned income. With rare exceptions, rental income is instead regarded as passive income.

Can Lenders Consider Rental Income?

When qualifying for a mortgage, does income from rental property count? When filing for a mortgage on an investment property or refinancing an existing one, rental income is typically able to be considered as qualifying income. On the other hand, just like any other source of income, it needs to be properly recorded and adhere to certain qualifying standards in order to be considered.

What Is Counted as Rental Income?

What Types of Money Count Toward Rental Income? In most cases, you are required to include all of the money you receive as rent in the calculation of your gross income. Rental income refers to any payment you receive for the use or occupation of the property and includes both short-term and long-term payments. You must record rental income for all your properties.

Does Fnma Allow Airbnb Income?

On a principal house consisting of two to four units, in which the borrower occupies one of the units, or on an investment property consisting of one to four units, rental income obtained from the property in question is acceptable.

How Does Fnma Calculate Rental Income?

When using current lease agreements or market rentals that have been reported on Form 1007 or Form 1025, the lender is required to compute the rental income by multiplying the gross monthly rent(s) by 75% in order to get the total amount of rental revenue. (On Form 1007, you’ll find that this is referred to as the “Monthly Market Rent.”)


Your rental property’s income may most likely be declared as income. Simply have the necessary evidence on hand to back up your claim. Discuss the exact papers that must be submitted for your particular rental situation with a lender to obtain an idea of what to include. Make sure to create copies before submitting your paperwork to the lender.

Fnma Rental Income FAQS

How do you factor rental income?

Lenders will base their expectations of rental income on the renter’s occupancy rate and the tenant’s lease payment schedule.

Can you use assets as income Fannie Mae?

The borrower must own all assets needed to generate a monthly income stream or the co-owner must sign a mortgage loan.

Does Fannie Mae allow rental income from family member?

Fannie Mae and Freddie Mac (government-sponsored firms that buy loans) allow California mortgage lenders to count border and renter income.

Related Article

  2. BUYING A RENTAL PROPERTY: Tips on Buying a Rental Property (Updated 2023)
  3. PERSONAL FINANCIAL PLAN: Guide To Build Your Financial Plan
  4. JUMBO MORTGAGE LIMIT: Jumbo Mortgage Limit 2023


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