Rental Income FAQ

Question: Is the appraiser required to complete Form 1000 Single-Family Comparable Rent Schedule, when rental income from the subject 1-unit Investment Property is not being used for qualification (Guide 5306.4)?

Answer: No, Form 1000 is not required when rental income from the subject 1-unit investment property is not being used to qualify.

However, per Single-Family Seller/Servicer Guide Section 5306.4(d), "Regardless of whether rental income from the subject Investment Property is being used to qualify the Borrower, the Seller must deliver the ULDD Data Point Property Dwelling Unit Eligible Rent Amount for:

• Subject 1-unit Investment Property
• Each non-owner-occupied unit in a 2- to 4-unit Primary Residence
• Each unit in a subject 2- to 4-unit Investment Property

Note: Form 72, Small Residential Income Property Appraisal Report is required for all subject 2- to 4-unit Primary Residences and subject 2- to 4-unit Investment Properties, regardless of whether rental income from units not occupied by the Borrower is used for qualification.

Question: Does the header in Guide Section 5306.4 (a) (iii): “Rental income from purchases and property acquired or placed in service in the current calendar year” indicate that the requirements for "Maximum eligible amount of net rental income" must also be applied to all properties that were placed in service in the current calendar year (i.e., rental income from a non-subject rental property must be limited if purchased in the current calendar year) (5306.4)?

Answer: The requirements for “Maximum eligible amount of net rental income” must be followed when applicable. The first bullet point is only applicable to the purchase of a new rental property. The second bullet point is only applicable to the conversion of the borrower’s current primary residence to a rental property. The third bullet point provides an additional requirement for the use of rental income exceeding the full monthly payment of either the new rental property or the newly converted primary residence.

Question:  The table in Guide Section 5306.4(a)(iii) for Rental income from property owned in the prior calendar year requires the Seller to obtain the borrower’s complete federal income tax returns including the Schedule E for the most recent year. Is it acceptable to use a lease instead of Schedule E in instances when the most recent tax return filed with the IRS does not include the property on Schedule E?

Answer:  In this scenario, Sellers may use the lease utilizing the documentation requirements included in Section 5306.4(a)(iii) for Rental income from purchases and property acquired or placed in service in the current calendar year, provided that all requirements in Section 5302.4(b)(ii) for age of tax return requirements are met.
 

Yes, short-term rental income or loss from Schedule E may be used and must be annualized for qualification purposes.

Yes, if the Seller can determine that the specific land contract or contract for deed confers ownership of the property to the borrower. The Seller may need to consult with legal counsel to determine if legal ownership has been established. In addition, all other rental income requirements in Section 5306.4 must be met.