Fannie Mae Forms 1007 and 1025 (Rental Income Documentation and Calculation)

Updated 2026-05-17

Rental income qualification refers to the practice of using rental proceeds from a subject property to help a borrower qualify for a mortgage. This flexibility can significantly increase a borrower's borrowing capacity and make homeownership more attainable.

Fannie Mae Forms 1007 and 1025 are crucial documents used in the underwriting process to determine market rent and calculate qualifying rental income, particularly for properties where a lease agreement is unavailable or the property was acquired after the most recent tax filing. These forms, along with IRS Schedule E, provide the basis for assessing a borrower's debt-to-income ratio and overall loan eligibility for properties with rental units.

Fannie Mae Form 1007: Single-Family Comparable Rent Schedule

Fannie Mae Form 1007, known as the "Single-Family Comparable Rent Schedule," is primarily used to determine the market rent for a single-family investment property. It serves as an alternative documentation method for rental income. While designed for single-family properties, it can be used to establish market rent for individual units within a 2-4 unit property when a lease is unavailable.

Fannie Mae Form 1025: Small Residential Income Property Appraisal Report

Fannie Mae Form 1025, or the "Small Residential Income Property Appraisal Report," is a specific appraisal form designed for two- to four-unit properties. It is a crucial document for establishing market rent for these multi-unit properties.

Qualifying Rental Income for 2-4 Unit Principal Residences

Qualifying rental income for a principal residence that is a 2- to 4-unit property refers to the specific methodology used by Fannie Mae to calculate the portion of rental income that can be used to qualify a borrower for a mortgage. This income directly impacts the borrower's VA-Approved Credit Underwriter and Underwriting Standards (DTI) and overall loan eligibility.

Fannie Mae outlines two primary methods for calculating this income, depending on the available documentation:

1. Schedule E Method (IRS Form 1040, Part I)

This method is used when the borrower has filed taxes and can provide Irs Form 1040 Schedule E.

Calculation Steps:

1. Determine Months in Service: "Fair Rental Days" refers to the number of days a property was available for rent during a tax year, as reported on Irs Form 1040 Schedule E. To determine the number of months a property was in service for income calculation, Fair Rental Days are divided by 30. If Fair Rental Days are not reported, assume 12 months in service unless evidence suggests a shorter term.
2. Start with Total Rents: Enter total rents received from the non-owner-occupied units.
3. Subtract Total Expenses: Deduct all reported expenses from Schedule E.
4. Calculate Adjusted Rental Income: Add back the following expenses, which are typically non-cash or already accounted for in the property's Pitia or are one-time in nature:
   • Insurance expense
   • Mortgage interest paid
   • Tax expense
   • Homeowners' association (HOA) dues (if specifically identified on Schedule E)
   • Depreciation expense or depletion
   • Any one-time extraordinary expense (e.g., casualty loss), with supporting evidence.
5. Calculate Monthly Qualifying Rental Income: Divide the resulting adjusted rental income by the number of months the property was in service (from Step 1) to get the monthly qualifying rental income (or loss).

2. Lease Agreement or Fannie Mae Form 1007/1025 Method

This method is used when the transaction is a purchase, or the property was acquired subsequent to the most recent tax filing, meaning a Schedule E is not yet available. This method applies when market rent is established via a lease agreement, Fannie Mae Form 1007 (for single-family comparables, applicable for individual units), or Fannie Mae Form 1025 (for multi-unit appraisals).

Calculation Steps:

1. Determine Gross Monthly Rent: Enter the gross monthly market rent from the lease agreement or the applicable Fannie Mae form (Form 1007 for single-family comparables, or Form 1025 for multi-unit appraisals) for each non-owner-occupied rental unit.
2. Apply Expense Reduction: Multiply this gross monthly rent by 75% (0.75). The remaining 25% is a standardized reduction mandated by Fannie Mae to account for typical landlord expenses such as vacancy loss, maintenance, and management. This standardized deduction simplifies the underwriting process by providing a consistent allowance for these common expenses, rather than requiring detailed expense documentation when a Schedule E is not used.
3. Combine Rental Income: Combine the resulting monthly rental income from all non-owner-occupied units. A maximum of 3 rental units can generate qualifying rental income, as the unit occupied by the borrower does not contribute to this calculation.

Impact on Qualification

The calculated monthly qualifying rental income (or loss) is then used to determine the borrower's overall eligibility:

• Positive Rental Income: Added to the borrower's monthly qualifying income.
• Negative Rental Income (Loss): Treated as a debt and included in the borrower's total monthly debt obligations for DTI calculation.

The full amount of the property's Pitia (Principal, Interest, Taxes, Insurance, and Association Dues) is identified as the borrower's primary housing expense and included in the DTI ratio. For the subject property, the proposed PITIA is used; for non-subject properties, the existing PITIA is used.

DU Data Entry: Specific instructions are provided for entering this income into Fannie Mae's Government Sponsored Enterprise (GSE) system:

• Subject Property: Entered as "Subject Net Cash."
• Non-Subject Property: Entered as "Net Rental."

These forms and calculation methods provide a standardized approach for Mortgage Loan Originators (MLOs) and underwriters to assess the potential rental income of a property, which is a critical component in determining a borrower's debt-to-income ratio and overall loan eligibility.

Under programs like the Freddie Mac Home Possible mortgage, an owner-occupant who plans to have boarders or renters in the property can include these anticipated rental proceeds as part of their qualifying income. Specific requirements for documenting and calculating rental income for qualification purposes typically involve lease agreements, historical rental income, and property-specific income analysis.