Changes To Rental Income Policy Effective Dec. 7, 2019

August 26, 2020

Fannie Mae is implementing new requirements for determining when rental income can be used for qualifying purposes. These changes are intended to support sustainable home ownership for borrowers purchasing an investment property without a prior history of managing rental properties. This new policy may also help to address certain risks, such as reverse occupancy fraud.

To determine the amount of rental income from the subject property that can be used for qualifying purposes when the borrower is purchasing a two- to four-unit principal residence or one- to four-unit investment property, the lender must consider the following:

If the borrower…Then for qualifying purposes…
• Currently owns a principal residence (or has a current housing expense), and
• Has at least a one-year history of receiving rental income or documented property management experience
there is no restriction on the amount of rental income that can be used.
• Currently owns a principal residence (or has a current housing expense), and
• Has less than one-year history of receiving rental income or documented property management experience
• For a principal residence, rental income in an amount not exceeding the PITIA of the subject property can be added to the borrower’s gross income, or
• For an investment property, rental income can only be used to offset the PITIA of the subject property
• Does not own a principal residence, and
• Does not have a current housing expense
rental income from the subject property cannot be used.

Effective Date

The updated requirements will apply to new loan casefiles submitted to DU on or after the weekend of December 7, 2019, and for manually underwritten loans with application dates on or after December 7, 2019.

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 nay 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

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. Form 1007 or Form 1025 must support the income reflected on the lease.

The lender must document the borrower has at least a one-year history of receiving rental income in accordance with Documenting Rental Income From Property Other Than the Subject Property above.

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