For years, Fannie Mae and most lenders allowed borrowers to use 75% of the actual rent on a lease agreement for “qualifying income” (as long as the rent did not significantly exceed market rates). After the 2008 meltdown, Fannie tightened up and correlated only to the income reported on a Schedule E on a tax return.
Recently, Fannie Mae relaxed this requirement. Fannie will again correlate to the rent on a lease agreement alone (and will usually ignore Schedule E expenses).
This is good to know for two reasons: (1) it is a reminder that borrowers can only use 75% of the rental income – many borrowers want to use 100%; and (2) it is a reminder that Fannie is loosening up and this extra income (and some creativity) will help qualify more borrowers.
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