Rental Income Mortgage Qualification 2026: Schedule E Rules, Vacancy Factors, and What Lenders Accept

Qualifying a borrower who owns rental properties requires understanding how each agency calculates rental income from Schedule E. The process is not as simple as using the rent collected. Vacancy factors, depreciation add-backs, and property-level netting all affect what number hits the DTI.

The Schedule E Calculation

For existing rental properties, underwriting uses 24 months of Schedule E from federal tax returns. For each property, take the gross rents received, subtract all expenses listed on Schedule E except depreciation (which is added back), then apply a 25% vacancy and maintenance deduction (or 75% gross rents to net income as the floor). This is the standard Fannie Mae approach.

Fannie Mae vs. Freddie Mac vs. FHA

• ✦Fannie Mae: uses Schedule E net income plus depreciation add-back; if property shows net loss, full loss counts against DTI
• ✦Freddie Mac: same fundamental approach as Fannie with minor documentation differences
• ✦FHA: uses 75% of gross rents minus PITIA on the rental property to get net rental income; simpler but produces different qualifying income than agency approach
• ✦VA: uses 75% of gross rent to offset the rental property payment; positive cash flow can add to qualifying income

New Rental Property With No Schedule E History

For a newly acquired rental with no rental history on tax returns, lenders allow use of a market rent analysis from the appraisal. 75% of the appraiser's fair market rent can be used to offset the subject property PITIA. This applies when the borrower cannot document 12 months of rental income on returns. The borrower must still have reserves covering 2-6 months of PITIA depending on the number of financed properties.

Multiple Financed Properties

Fannie Mae limits a borrower to 10 financed properties for conventional loans. Properties 5 through 10 require 720+ FICO and 25% down on purchase. Each additional financed property adds to reserve requirements. Calculate rental income and losses for each property individually and net them against each other to get the total rental income impact on DTI.