If you’re a real estate investor and own or plan to own rental properties, all your deals and loans must comply with guidelines set forward by Fannie Mae.

In particular, an investor needs to know the restrictions when it comes to money and income flow between the buyer and seller. The Fannie Mae rules of income can be confusing, and the investor might unintentionally commit mortgage fraud.

Read on for a detailed breakdown of Fannie Mae guidelines rental income in 2023.

Fannie Mae Rental Income Requirements

This is a critically important topic for landlords, real estate investors, and others involved in the industry. Generally, property size is taken into account as well as the number of occupants, in determining eligibility.

Rental income must be verifiable to be taken into account and must be from legal, non-cash sources. Fannie Mae must be able to demonstrate that the income has a reasonable potential for both continuity and stability.

Furthermore, any rental income received must meet a certain minimum threshold to be considered for approval. This should be in compliance with all applicable federal, state, and local laws as an additional requirement.

Every rental income must meet a minimum of 80% of the total monthly mortgage payments. This applies to single-family and two- to four-unit properties.

What Are The New Changes On Rental Income By Fannie Mae

In 2023, Fannie Mae will offer more flexibility to underwrite rental income. This is from investment properties on loans they purchase or guarantee. The new changes will allow lenders to include up to 75 percent of the Scheduled Contract Rent (SCR). This is versus the current 70 percent when calculating eligible rental income to be used in the borrower’s debt-to-income (DTI) ratio.

The DTI limit used for rental income calculation will increase to 60 percent. This is compared to the current 50 percent DTI limit already in place. Investors can be treated as owner-occupants when calculating the SCR and DTI for their rental properties.

This will help borrowers qualify for a larger loan amount and more competitive interest rates. Lastly, Fannie Mae will recognize rent from individuals other than the tenant as eligible rental income.

Fannie Mae Rental Income Versus Other Mortgage Options

In 2023, Fannie Mae will likely continue to be an important player in the mortgage industry. It provides mortgages with competitive interest rates and flexible terms. These are attractive to potential borrowers.

Fannie Mae allows for rental income to be used as an additional form of income. This can be beneficial in the event of an economic downturn. Despite its attractive features, other options for mortgage loans may be available in 2023.

These can offer competitive rates in addition to potential tax benefits. For example, the following can potentially be lower than Fannie Mae’s:

• federal or state mortgage programs
• jumbo loans
• home equity lines of credit
• private mortgages

To find the best option, it is important to research more about investment loans and shop around for the best deal.

All About Fannie Mae Guidelines Rental Income

The Fannie Mae guidelines rental income in 2023 are clear and beneficial for many potential borrowers, providing the assurance that potentially troubled rental income can, in many cases, be included as part of qualifying for a new loan.

If you want to know more about how to best leverage these beneficial guidelines, contact an experienced mortgage professional who can help you navigate the often complicated loan process.

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