LoanFight takeaway
Do not assume a flat 75% rule applies identically to every transaction. Confirm the rent source, the landlord-history rules and any lender overlays before you count on the income.
How the rent is documented
For a two- to four-unit home, the appraiser commonly estimates market rent for each unit on the small residential income property report (Fannie Mae Form 1025). If the seller has tenants with leases that will stay in place, the lender may also review those leases. As the redesigned UAD 3.6 appraisal rolls out, market rent is reported within the new appraisal dataset; see what UAD 3.6 changes.
Fannie Mae's rental income guidance (Selling Guide B3-3.1-08) generally uses 75% of gross monthly rent when the income is documented by a lease or market rent. The other 25% accounts for vacancy and maintenance. FHA's handbook takes a similar approach for the other units of a principal residence.
Worked example
| Two-family purchase, illustrative | Amount |
|---|---|
| Market rent for the second unit | $2,000 |
| Qualifying rent at 75% ($2,000 × 0.75) | $1,500 |
| Borrower's monthly wage income | $6,000 |
| Full housing payment + other debts ($3,200 + $400) | $3,600 |
| DTI without rent ($3,600 ÷ $6,000) | 60% |
| DTI with rent ($3,600 ÷ $7,500) | 48% |
Counting the rent moves this buyer from clearly too high to a range that some approvals accept. Every lender applies its own DTI limits and calculation, so treat this as an illustration.
Program differences to know
- FHA: 1–4 unit owner-occupied homes are eligible with the standard 3.5% minimum down payment for qualifying credit. Three- and four-unit homes must also pass a self-sufficiency test, in which net rent must cover the full payment. A two-family home is not subject to that test.
- Conventional: Fannie Mae currently allows as little as 5% down on eligible 2–4 unit principal residences. Rental income rules follow the Selling Guide plus any lender overlays.
- VA: eligible veterans can buy up to four units as a primary residence; rental income rules follow VA guidance and the lender.
Where the 75% assumption breaks
- Landlord history. Some programs or lenders want prior landlord experience, extra reserves or completed landlord education before counting the rent.
- Legal use. An unpermitted or illegal second unit may get no rent credit and can create appraisal problems.
- Lease vs market rent. A lender may use the lower of the two, or ask questions if a lease is far above market.
- Short-term rentals. Nightly-rental projections are generally treated differently from long-term market rent.
- Occupancy. You must genuinely live in the other unit, commonly moving in within 60 days and intending to stay at least a year.
Related questions
Can I count rent if the second unit is vacant?
Often, using the appraiser's market-rent estimate, but some lenders add requirements. Confirm before you write an offer.
Is it always 75% of the rent?
No. 75% is common, but the rent source, program rules and lender overlays can change the figure.
Do I need to have been a landlord before?
It depends. Landlord-history, education and reserve rules vary by program and lender.
Does this work for a three- or four-unit home?
Often, but FHA adds a self-sufficiency test for three and four units.
Sources
- Fannie Mae Selling Guide B3-3.1-08: Rental income
- HUD Single Family Housing Policy Handbook 4000.1
- Fannie Mae: Uniform Appraisal Dataset
Program rules change. Confirm current guidelines and lender requirements for your transaction. LoanFight is not a direct lender and does not set final terms.
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Educational information only, not an offer, approval or financial, tax or legal advice. Guidelines vary by program, lender and borrower and must be confirmed. Equal Housing Opportunity.