Using Future Rental Income to Qualify: What Fannie Mae and FHA Actually Require

Future rental income is one of the most misapplied guideline areas in mortgage lending. Borrowers converting a primary residence to a rental or purchasing an investment property often expect the projected rent to fully offset their housing payment for qualifying purposes. The actual rules are more restrictive.

Fannie Mae: Departing Residence

When a borrower is converting their primary residence to a rental property, Fannie Mae allows future rental income to offset the departing PITIA only if the borrower has at least 30% equity in the departing property (documented by appraisal or automated valuation) AND can document a fully executed lease agreement with the first month's rent received in the form of a security deposit.

Fannie Mae: New Investment Property

• ✦If the borrower has 12 months of landlord experience, future rental income may be used at 75% of market rent or lease rent, whichever is lower
• ✦Without 12 months of landlord experience, the rental income cannot offset the new investment property PITIA
• ✦Market rent is documented via the 1007 or 216 appraisal form completed by the appraiser
• ✦Executed leases are preferred; if no lease exists, the 1007 provides the market rent basis

FHA Guidelines on Rental Income

FHA takes a stricter approach. Future rental income from the departing primary residence is not allowed unless the borrower is relocating for employment and the distance meets the relocation threshold (100 miles). Even then, FHA requires a fully executed lease and a security deposit. Without meeting these conditions, the departing housing payment counts in full as a debt in the DTI calculation.

The Vacancy Factor Calculation

Even when future rental income is permitted, Fannie Mae and Freddie Mac use 75% of gross rental income for qualifying, with the remaining 25% representing assumed vacancy and maintenance costs. This means a property renting for $2,000 per month yields $1,500 in qualifying income. FHA uses the same 75% factor.