B3-3.8-02, Rental Income from the Subject Property (09/02/2026)

The following property types are eligible:

• two-to four-unit principal residences, or
• one-to four-unit investment property, or 
• one-unit Accessory Dwelling Unit (ADU) allowed with a one-unit primary residence only.

The lender must document the borrower's current housing payment to use any rental income from the subject property in qualifying.¹

Purchase: 

The lender must obtain the following:

• a Single-Family Comparable Rent Schedule ( Form 1007) or Small Residential Income Property Appraisal Report (Form 1025), as applicable, and
• a copy of the fully executed lease agreement(s) when a lease is being transferred to the borrower.^{2 and 5} (This must be supported by Form 1007 or Form 1025.)

If the current market rents do not reasonably support the gross rents reported on the lease agreement, the lender must:

• determine if additional documentation is necessary to support income stability,
• provide a written analysis explaining the discrepancy, and to justify their determination that the rental income used in qualifying the borrower is stable and reasonably expected to continue; or
• use the lesser amount.

Refinance:

The lender must obtain the following:

• Form 1007 or Form 1025, as applicable, to support monthly gross rents; 
• the most recent individual federal income tax returns (IRS Form 1040), including Schedules 1 and E; and
• copies of the current lease agreement(s) if the property meets one of the qualifying examples to justify the use of a lease agreement.²

In addition, the lender must also confirm the following:

• the lease or rental amount is supported by Form 1007 or Form 1025;
• documentation to support the terms of the lease are in effect,² and the settlement statement or alternative documentation confirming the subject property's purchase or transfer of ownership date; or
• the repair expenses on Schedule E
  • reflect the costs for renovation or rehabilitation,
  • confirm the number of Fair Rental Days is less than 365, and 
  • support the amount of time the subject property was out of service.

If the current market rents do not reasonably support the gross rents reported on Schedule E or the lease agreement for either transaction type, the lender must

• determine if additional documentation is necessary to support income stability, 
• provide a written analysis explaining the discrepancy and justify their determination that the rental income used in qualifying the borrower is stable and reasonably expected to continue; or
• use the lesser amount.

Purchase:

To determine adjusted net rental income (ANRI), the lender must

• multiply monthly gross rent by 75% for the net rental income amount, then
• subtract the PITIA of the subject property from the net rental income.

Example:

Gross monthly rent x .75 = Net Rental Income

Net Rental Income - PITIA = ANRI

When the borrower has 12 months or more of rental property management experience

• if ANRI is positive, the lender may use the full amount in qualifying.³
• if ANRI is negative, the lender must include the amount in the DTI ratio.³

When the borrower has less than 12 months of rental property management experience

• if ANRI is positive, the lender may use the rental income to offset the PITIA only.³
• if ANRI is negative, the lender must include the amount in the DTI ratio.³

Refinance:

To determine the adjusted net rental income (ANRI)

• If the subject property is reported on Schedule E of the most recent individual federal income tax return (IRS Form 1040) and meets one of the qualifying examples to justify the use of a lease agreement,² the lender must
  • calculate the net rental income by performing a cash flow analysis using Schedule E,
  • average the results over the number of months the property was in service,⁴ then
  • subtract the PITIA of the subject property.
• If the subject property is listed on Schedule E and the property does not meet one of the qualifying examples to justify the use of a lease agreement, the lender must
  • calculate net rental income by performing a cash flow analysis using Schedule E, and
  • average the results over 12 months.⁴
• If the subject property is not reported on Schedule E of the most recent individual federal income tax return (IRS Form 1040), the lender must
  • multiply the lease amount by 75% for the net rental income amount, then
  • subtract the PITIA for the subject property.

When the borrower has 12 months or more of rental property management experience

• if ANRI is positive, the lender may use the full amount in qualifying.³
• if ANRI is negative, the lender must include the amount in the DTI ratio.³

When the borrower has less than 12 months of rental property management experience

• if ANRI is positive, the lender may use the rental income to offset the PITIA only.³
• if ANRI is negative, the lender must include the amount in the DTI ratio.³

Note: Cashflow of the subject property equals the net amount on Schedule E plus any depreciation, interest, homeowners' association dues, taxes, or insurance expenses divided by the number of months as noted above. The lender may add back non-recurring property expenses, if documented accordingly.

The following limitations apply to properties with ADUs:

• Rental income is only allowed from one existing ADU.
• Purchase or limited cash-out refinance transactions only.
• The qualifying rental income amount from the ADU is limited to 30% of the total qualifying income.