How to use rental income to qualify for a loan?

Rental income can be used to qualify for a mortgage loan, but the calculation method, documentation requirements, and DTI treatment vary significantly by property type, occupancy, loan program, and lender overlay. The 75% gross rent standard is the most common baseline across agency and non-agency programs.

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Part 1: Conventional / Agency Guidelines

Fannie Mae — Eligibility by Property Type and Borrower Profile

Fannie Mae limits how much rental income may be used based on whether the borrower has an existing primary housing payment and prior property management experience :

Fannie Mae — Calculation Method

Per Fannie Mae guidelines :

• Schedule E (tax returns): Average the annual rental income or loss over 12 months. Add back depreciation, mortgage interest, HOA dues, taxes, and insurance to cash flow.
• Current lease agreement: Multiply gross monthly rent by 75%. The remaining 25% accounts for vacancy losses and ongoing maintenance expenses.

Fannie Mae — Documentation (Subject Property) Fannie Mae

• Refinance (with rental history): Form 1007 or 1025 AND most recent year signed federal tax returns with Schedule E, OR current lease (if qualifying exception applies)
• Purchase (no prior rental history): Form 1007 or 1025, and current lease agreements if transferred to the borrower

Fannie Mae — DTI Treatment Fannie Mae

• Primary residence (e.g., 2–4 unit owner-occupied): rental income is added to qualifying income AND the full PITIA is included in monthly obligations — income is not netted.
• Non-primary residence investment property: the PITIA is factored into the net rental income calculation, not counted separately as a monthly obligation.
• Multiple non-subject rental properties: calculate each individually, then aggregate. If the combined result is positive, add to income; if negative, add to liabilities.

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Freddie Mac — Calculation and Documentation

Freddie Mac follows the same 75% gross rent standard for lease-based calculations :

"Use 75% of the gross monthly rent from the lease. The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses."

• Subject 2–4 unit Primary Residence purchases: net rental income is added to stable monthly income but the full PITIA is calculated without using rental income
• Non-subject investment properties newly placed in service :
  • A current, fully executed lease
  • Income on the lease supported by Form 72/1000 OR documentation verifying 2 months' receipt of rental payments or security deposit + first month's rent
  • Borrowers with no management experience: net rental income is limited to offsetting the PITIA only
• Primary Residence converting to Investment Property :
  • Current, fully executed lease (first payment due no later than first mortgage payment date)
  • Income supported by Form 72/Form 1000, or evidence of 2 months' payments / security deposit + first month's rent

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Part 2: Lender-Specific Overlays (Non-Agency / Non-QM)

AD Mortgage — Non-QM Full Doc and Alt Doc AD Mortgage

• Primary residence rental income: Added to borrower's total monthly income; full PITIA still included in obligations (not netted).
• Non-primary residence: Full PITIA is factored into the net rental income amount; it is not counted separately as a monthly obligation.
• Subject property history: Schedule E from the most recent 1–2 year federal returns (averaged); net rental losses are included in ratios as a liability.
• Alternative income programs: rental income documented using a fully executed lease (new lease acceptable for purchase with 2 months' payments); Schedule E must NOT be provided for alt-doc loans.
• Short-term rentals (e.g., Airbnb): "Use 75% of the average actual short-term rental income received over the most recent 12 months, minus PITIA." AD Mortgage

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Nations Direct — Non-QM

• Purchase (subject property):
  • Use appraiser's opinion of market rent with a 25% vacancy factor; no lease required
  • If a lease is in place, use the lesser of lease or appraiser's market rent
  • Primary residence (2–4 units): add rental income to gross income; do NOT offset PITIA
  • Investment property: calculate rental income on a net basis
• Refinance (subject property):
  • Use 75% of the current lease income
  • Property must be currently leased; expired lease converted to month-to-month is acceptable
  • Must document one month's receipt of rental income dated within 60 days of note date
• Non-Subject Property:
  • Use 75% of current rental income less documented PITIA
  • Property must be currently leased; one month's receipt required within 60 days of note date
• Departing Residence:
  • Use 75% of monthly gross rental income less PITIA
  • Requires a fully executed lease of at least 1 year's duration after loan closing
  • Must provide evidence of security deposit or first and last month's rent received
• Boarder Income in SFR: Acceptable only if boarders are related by blood, marriage, or law; income must appear on borrower's tax return

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New Wave Lending — A-QM Expanded Portfolio

• Purchase transactions: rental income determined by appraisal Form 1007/216.
• Refinance and REO properties :
  • Long-term rental: lease agreement + 2 months bank statements showing rental receipt
  • Short-term rental: 12-month lookback or annual statements from the platform; 80% of verified average monthly rental income may be used to offset PITIA
• 2–4 unit primary residence (other unit rental income):
  • Monthly qualifying rental income is added to borrower's total monthly income (not netted against PITIA)
  • Full PITIA must be included in monthly obligations when calculating DTI

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AmWest — Alt-Doc (CES and HELOC) AmWest

• Total gross rent minus 25% vacancy factor is used when: properties are jointly owned with a spouse, 12 months cancelled checks document 100% rent paid to borrower, OR Schedule E is provided.
• When Schedule E is used, the vacancy factor is not considered.
• Rental income must be verified from executed lease agreements and internet searches (Zillow, Rentometer, etc.); the lower of the two is used for qualifying.

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JMAC Lending — HomeReady Overlay JMAC Lending

• Fannie Mae Form 216 (Operating Income Statement) is required for 2–4 unit properties regardless of whether rental income is used to qualify.
• "Rental income is calculated from the subject property's gross rental figure provided by the appraiser using the lesser of 75% for a 2-unit property, and 65% for a 3-4 unit property, of the actual or projected rent. The rental income is added to the gross qualifying income." JMAC Lending
• Boarder Income: Allowed up to 30% of total gross qualifying income; boarder must have lived with the borrower for 12 months and can document rental payment history JMAC Lending

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Mega Capital — Bank Statement / Alt-Doc (MVP)

• "Departing residence positive rental income cannot be used to qualify."
• Departing residence PITIA can be offset by 75% of projected net rental income if subject is recently rented (signed 12-month lease + evidence of first month, last month, or security deposit payment).
• Any departing residence rental that produces a loss must be included in DTI.

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Mega Capital — Silver Jumbo Mega Capital

• Eligible rental income sources: owner-occupied 2–4 unit primary residence, single-family investment property, or other investment properties not part of the current transaction.
• Rental income from a second home or single-family primary residence is NOT eligible and may not be used as a compensating factor.
• Borrowers without rental history: income calculated using 75% of gross income supported by current leases.

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Part 3: DSCR Programs (Investment Property — No DTI)

DSCR is used exclusively for investment properties where no personal income or DTI is calculated. Qualification is based solely on property cash flow.

DSCR Formula: DSCR = Gross Rental Income / PITIA (or ITIA for Interest-Only loans) Mega Capital

Mega Capital — DSCR Mega Capital

• Use the lower of the executed lease or Form 1007/1025 market rent
• If actual rent is higher than market rent, up to 120% of market rent may be used with 2 months' proof of receipt
• Vacant/unleased property: market rent from Form 1007 may be used
• Short-term rental (Airbnb/VRBO): refinance only, minimum 12-month history, income averaged over 12 months; no market rents used in calculations
• Rent loss insurance required — minimum 6 months of average monthly rents

JMAC Lending — Newport DSCR JMAC Lending

• Monthly gross rents established from Form 1007 or 1025 for all transactions
• Purchase: vacant property allowed without LTV restrictions
• Refinance: if lease has converted to month-to-month, provide 2 months' proof of receipt
• If 1007/1025 market rent is higher than the transferred lease, the higher rent may be used without additional documentation

Nations Direct — DSCR Nations Direct

• Long-term rental: use lower of lease or Form 1007; lease must be provided
• Short-term rental income: accepted with third-party documentation for a complete consecutive 12 months from the rental platform
• Experienced investors only (minimum 12 months owning/managing residential or commercial investment property within the prior 36 months)

Nations Direct — Non-QM DSCR Express

• "No income or employment is verified for this product. The employment section of the application should be left blank, and the income section must remain blank as no DTI is developed."
• Minimum 12-month history of owning and managing rental properties within the prior 3 years required.
• First-time investors (with a primary residence but no investment history) are allowed with a minimum FICO of 680.

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Summary: Key Principles Across All Programs