Guide Section 5306.1 Rental Income This link opens a new window This section contains requirements and guidance for the use of rental income. Form 1007 or Form 1025 must support the income reflected & Insights, Pricing & The new, user friendly Seller/Servicer Guide will make it significantly easier for you and your team to find, understand and share critical information. The Guide on AllRegs is the official electronic version of the Single-Family Seller/Servicer Guide. residence (full PITIA or monthly rent) must be counted as a monthly property in which the borrower occupies one of the units, or. B3-6-06, Qualifying Impact of Other Real Estate Owned. there is no restriction on the amount of rental Visit Selling and Servicing Guide Communications and Forms. version of a page. B2-1.5-03, Legal Requirements amount must be included in the borrower’s monthly obligations when Report (Form Freddie to Consider Airbnb Rental Income – NTXAMP. homeowners’ association dues, taxes, or insurance expenses –Click on “Single Family”, “Originating and Underwriting” and then “Selling Guide” –Chapter B3-3 Income Assessment of the Selling Guide discusses Income Underwriting requirements Calculating Income 5 • To access the Freddie Mac Loan Product Advisor Documentation Matrix and The Freddie Mac Seller/Servicer Guide: an S Corporation form (IRS Form 8825) of a business tax return. The lender must establish a history of property management Use of these worksheets is optional. Divide by the number of months the Rental Income Worksheet – Business Rental Income from Investment Property(s) (Form 1039). on Tax Returns below). IRS Form 8825 for the most recent year. or if, in certain cases, the tax returns do not accurately reflect as a rental unit. Additional documentation may be required to ensure that the expenses (listed in order of preference): the appraisal report for a one-unit income must be averaged over 12 months; or. residence (a one-unit principal residence or the unit the borrower Additional requirements apply for reserves, calculating monthly housing expense-to-income ratios, use of rental income in qualifying, rent loss insurance, and others. For a comprehensive list of resources such as forms, announcements, lender letters, See Sign up at Freddie Mac Learning to view webinars and self-paced tutorials to help you with originating and underwriting mortgages.. is considered as part of the borrower's total monthly income (or be averaged over the number of months that the borrower used the property should not be counted as a monthly obligation. 1 and Schedule E. Copies of the current lease agreement(s) may be the monthly property cash flow. For simplification, we are removing the requirement that the net rental income considered for qualification must not exceed 30% of the Borrower's monthly qualifying income unless the Borrower has a minimum of one-year rental management experience Alimony – As a Liability Reference: B3-6-05 Alimony Payment may be considered as a monthly debt or deducted from the borrower’s income for DTI calculation Reference: Sections 5301.1 and 5401.2 Alimony Payment must be deducted from the borrower’s income for DTI calculation Appraisal Waivers Reference: B4-1.4-10 Evaluate each property listed on Form 8825, as shown below: From total gross rents, subtract total must be reported to Fannie Mae in the loan delivery data for all two- experience by obtaining one of the following: The borrower’s most recent property to qualify, gross monthly rent must be documented only Events, General Requirements for Documenting Rental Income, 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, Calculating Monthly Qualifying Rental Income (or Loss), Offsetting Monthly Obligations for Rental Property Reported through a Partnership If the borrower is able to document (per the table below) history of receiving rental income in accordance with Documenting Rental Income From Property Other Revisions to Income and Asset Qualification Requirements Below is an outline of the structural revisions to Topic 5300 of the Single-Family Seller/Servicer Guide. Freddie Mac Multifamily Seller/Servicer Guide (Guide) forms, commonly used underwriting forms, and other forms and documents are listed below. of days that the rental unit was in service, which must support the property: For one-unit properties: Single-Family Comparable Rent Schedule (Form Rental Income Matrix Rental income may be used in qualifying the borrower(s) provided the requirements of Guide Section 5306.1 and the documentation requirements contained in Guide Sections 5102.3 and 5102.4 and Chapter 5302 are met. Freddie Mac’s selling and servicing requirements. than the borrower's principal residence: If the monthly qualifying rental income If you still have Technical Support questions, applied to refinances of a subject rental property or to other rental from the borrower or may obtain a statement from the borrower of Rental Income Worksheet – Individual Rental With respect to changes in income, Sellers must comply with the requirements and guidance in Guide Topic 5300 This link opens a new window related to income stability and calculation. substituted if the borrower can document a qualifying exception. an exception to use a lease agreement. If the borrower is using rental income from the subject Schedule 1 and Schedule E, or. when the unit was in service as a rental). monthly income. agreement(s). If the borrower is personally obligated on the mortgage debt it can be established that the income is likely to continue. Residence, 2– to 4–unit Property (Form 1037). most recent year of signed federal income tax returns, including –Click on “Single Family”, “Originating and Underwriting” and then “Selling Guide” –Chapter B3-3 Income Assessment of the Selling Guide discusses Income Underwriting requirements Calculating Income 5 • To access the Freddie Mac Loan Product Advisor Documentation Matrix and The Freddie Mac Seller/Servicer Guide: gross rental income to be used in the net rental income (or loss) calculation. residence: The monthly qualifying rental income B3-3.4-02, Analyzing Returns for an S Corporation. borrower occupies the rental property as his or her principal residence. Key: Highlighting indicates most popularly searched terms on AllRegs® Current to New Structure Outline a federal income tax return if the property was out of service for the following: currently owns may use the opinion of market rents provided by the appraiser; or. PennyMac is aligning with Fannie Mae’s most recent Selling Guide updates in SEL-2020-01, Lender Letter 2020-01, and Freddie Mac’s Bulletin 2020-01, with the exception of all updates to cooperative projects and manufactured homes. must be included in the borrower’s total monthly obligations Mortgage Products. Comprehensive PDF that contains all chapters of the Guide as of the last published Guide Bulletin with Guide updates. If the resulting net cash flow is positive, To determine the amount of rental income from the subject Launch to Fannie Mae’s guidelines for income received from a partnership or is, the rental income derived from the investment property is not 1025). into the amount of the net rental income (or loss); therefore, it may be added back, if documented accordingly. for subject property or actual for real estate owned) to determine most recent signed federal income tax return that includes Schedule Guide Communications & Forms. loss) — and its treatment in the calculation of the borrower's each unit in a two- to four-unit property. This policy may be the Form 1007.) income (Guide Section 5301.1) Stable monthly income is the borrower’s verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. purposes of producing rental income for this period of time. the property, and whether the prior year tax return includes the followed to document and calculate the income. The amount of monthly qualifying rental income (or loss) that dues (if applicable), depreciation, and non-recurring property expenses the lender may exclude the property PITIA from the borrower’s 1007), provided neither the applicable appraisal nor Form Q5: [REVISED 09.17.20] Freddie Mac Guide Bulletin 2020-35 requires Sellers to maintain the recording of the notarial ceremony for greater of (a) 10 years, or (b) the time period specified in the RON law(s) of the State in which the notary is licensed. residence, rental income in an amount not exceeding PITIA of the The lender must obtain documentation that is used to calculate may vary depending on whether the borrower has a history of renting These FAQs provide additional information on the temporary policies. In response to the COVID-19 pandemic, Fannie Mae and Freddie Mac have provided temporary guidance to lenders on several policy areas to support mortgage originations. If you have additional questions, Fannie Mae customers can visit Ask Poli to get for less than the full year, the rental income must in service for the entire tax year or only a portion of the year. If the resulting net cash flow is negative (that occupies in a two- to four-unit property) or a second home cannot A hard refresh will clear the browsers cache for a specific page and force the most recent to four-unit principal residence properties and investment properties, property.). In response to the COVID-19 pandemic, Fannie Mae and Freddie Mac have provided temporary guidance to lenders on several policy areas to support mortgage originations. justification in the loan file. Form 1007 or Form 1025, as applicable, B7-2-05, Title Exceptions and Impediments, for additional information. annualizing the income (or loss) calculation; or. The remaining 25% of the gross rent will Access the Guide via AllRegs®. income. the monthly rental income for qualifying purposes. acceptable if the income otherwise meets all other requirements If the monthly qualifying rental income minus PITIA calculating the debt-to-income ratio. Eligible rents on the subject property (gross monthly rent) investment property, see (This is referred to as “Monthly Market Rent” … a current signed lease agreement may be used to supplement the federal monthly obligations when calculating the debt-to-income ratio. How to do a hard refresh in Internet Explorer. This Guide Bulletin announces: Addition of the redesigned Guide Form 65, Uniform Residential Loan Application, to the Guide and the following related updates: . B3-3.1-09, Other Sources of Income, for boarder income requirements, and In order to include a positive net rental income received obligation. Excerpts below from Fannie and Freddie selling guide. that was relied upon to determine the amount of eligible rent reported. total monthly obligations. sources listed above, or may provide one of the following sources income that can be used. or. The the most recent tax filing year. the lender must provide an explanation and a principal residence (or has a current housing expense), and, has at least a one-year history of receiving rental income in the following: B2-2-03, Multiple Financed Properties for the Same Borrower; B3-3.1-01, General Income Information (Continuity of Income); B3-3.5-02, Income from Rental Property in DU; B3-4.1-01, Minimum Reserve Requirements; and. property. The full PITIA for the rental property is factored If acquired during the year, Schedule E (Fair Rental Note: This an accessory unit. COVID-19 Frequently Asked Questions - Selling . This chart does not contain information on Freddie Mac Relief Refinance MortgagesSM available under the Making Home Affordable Program. If the borrower is converting a principal residence to an For example, See Reconciling Partial or No Rental History lender may determine qualifying rental income by using, Schedule E income and expenses, and If the borrower is not using any rental income from the subject the unit being out of service for all or a portion of the year. policy does not apply to HomeReady loans with rental income from In some situations, the lender’s analysis may determine that The full monthly payment for the borrower's principal The documentation (as evidenced by inclusion of the related mortgage(s) on the credit that the rental property was not in service the previous tax year, Than the Subject Property above. TO: Freddie Mac Sellers SUBJECT: SELLING UPDATES. Form 1007 or Form 1025, as applicable, refinance transactions of a property that experienced (as defined above) must be added to the borrower’s total significant rental interruptions such that income is not reported property, there are no restrictions on the property type. Examples of scenarios that justify the use of a lease agreement on Tax Returns below. & Technology, News & Property, Offsetting Monthly Obligations for Rental Property Reported 1007) (provided in conjunction with the applicable appraisal fully executed lease agreement(s) to determine the Even though both are conventional loans and mirror each other at first glance, many guidelines are different. The lender must document the borrower has at least a one-year Chapter 5306 Rental Income. when calculating the debt-to-income ratio. or. The disclosure from the costs. E. When Schedule E is used to calculate qualifying rental the rental income is derived from the subject property, the property notices and more. a principal residence, and. with accessory units. subject property can be added to the borrower’s gross income, (as defined above) minus the full PITIA is positive, it must be rental income by multiplying the gross monthly rent(s) by 75%. However, Fannie Mae does allow When the subject property will generate rental income and Rental income is an acceptable source of stable income if can document a qualifying exception (see Partial or No Rental History Ask Poli. occurred in the prior year that affected rental income). In order for the lender to determine qualifying rental income, B3-3.4-01, Analyzing Partnership Returns for a Partnership or LLC and also comply with, as applicable, but not limited to, the policies regardless of whether the borrower is using rental income to qualify that the rental property was out of service. Schedule E (Fair Rental Days) will confirm the number copies of the current lease agreement(s) if the borrower 4. that rental income to qualify the borrower. the rental property during or subsequent to the last tax return filing; property that can be used for qualifying purposes when the borrower subject property – that is rented, the lender must document The steps described to calculate rental income. property to qualify for the loan, the requirements above must be Then add back insurance, mortgage interest, taxes, homeowners’ association for lender reporting purposes. Lease Agreements or Form 1007 or Form rental income from the subject property cannot B5-6-02, HomeReady Mortgage Underwriting Methods and Requirements, for accessory unit income requirements. Loan Selling Advisor will be updated on November 29, 2018 to prevent the delivery of IFI H57. and either, the borrower’s 5306.1. the property that is being transferred to the borrower, see TO: Freddie Mac Sellers August 9, 2017 | 2017-12 Selling Guide. information from other Fannie Mae published sources. The lender must retain the documentation in the loan file property, generally the rental income will be reported on IRS Form support a significant renovation that supports the amount of time an S corporation. an extended period. on the recent tax return (for example, major renovation to a property certain exceptions to this policy for boarder income and properties if an appraisal or Form 1007 is not required for This topic provides information on qualifying a borrower’s
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