Skip to content
Fact Checked by Experts

Using Rental Income to Qualify for a Mortgage: What You Need to Know

Using rental income can really help you get a mortgage and buy a home.

This guide will help you understand how to use money from renting out places, including rooms to boarders, to improve your chance of getting a mortgage.

We'll cover what papers you need and the rules from different mortgage agencies so you know how to apply.

Plus, if you've got experience renting out property or managing rentals, we'll show you how to use that to your advantage to strengthen your mortgage application.

Key Points

Utilizing Rental and Boarder Income

You can boost your mortgage application by including up to 30% of boarder income or rental income from properties you own. Documentation of consistent rent payments and shared residency (for boarder income) is essential.

Agency-Specific Guidelines

Each agency (Fannie Mae, Freddie Mac, FHA, VA, USDA) has distinct rules for calculating and using rental income. Understanding these guidelines is critical for leveraging rental income across different types of loans.

Documentation for Rental Income

Validating rental income for purchasing or refinancing requires specific documentation, such as lease agreements, appraisal reports, and possibly tax returns, to prove the income's stability and reliability.

Impact of Rental History

A history of rental income or property management experience can significantly enhance loan qualification prospects, allowing for more rental income to be considered in the mortgage application.

A homeowner consulting with mortgage lender about using rental income to secure mortgage

Can Rental or Boarder Income Be Used to Qualify for a Mortgage?

If you're making money by renting out part of your home to someone else, this is called border income. It's a way to boost your income when you apply for a mortgage.

You can count up to 30% of your income from renting out part of your home, especially if you have a disability and the renter is someone who helps you, like a live-in personal assistant.

But, to count this income, you must show proof of living together and that you've been getting rent payments for the last year, usually with bank statements or canceled checks.

Rental income, whether from the property you want a mortgage for or other properties you own, is also important for getting a mortgage.

This includes money from renting out your main home, any other properties you invest in, or a home you used to live in but moved out of.

How this rental income is used depends on the situation. It might be added directly to your total income or help balance your monthly spending. This can make a big difference in whether you can afford the mortgage you're applying for.

So, it's really important for people using rental income to understand these rules to strengthen their mortgage application.

Guidelines for Rental Income by Type of Loan

Regarding utilizing rental income for mortgage qualification, guidelines can vary significantly among different agencies. Each has its own rules for calculating, documenting, and using rental income in the mortgage application process.

Here's a simplified overview of these guidelines:

Fannie Mae

Boarder Income

Allows up to 30% of qualifying income from boarders, especially if the borrower is disabled and has a live-in personal assistant. Requires documentation of shared residency and rental payments for the past 12 months.

Rental Income

There is no restriction with at least one year of rental history or property management experience. Less than one year limits income to not exceed the property's PITIA (Principal, Interest, Taxes, Insurance, and Association dues).

Freddie Mac

Similar to Fannie Mae, emphasizes documentation of rental history and boarder income, allowing for certain flexibilities if the borrower has documented property management experience or rental income history.


Boarder Income

This requires a two-year history of rental income receipt, as per tax returns. The lower of the current lease or two-year average income can be used.

Rental Income

This policy does not allow the purchase of investment property. Rental income must be calculated by adding it to the borrower's gross income, using specific forms for appraisal and operating income statements.


Rental income can be included in effective income if the borrower has prior property management experience.

Stipulates that the rental cannot impair the residential character of the property and cannot exceed 25% of the total floor area.


It does not permit the use of rental income to qualify for an investment property purchase and requires a two-year minimum history of rents received for existing investment properties.

How Is Rental Income Calculated and Documented for Purchasing or Refinancing a Property?

Calculating and documenting rental income involves specific steps and necessary paperwork when buying or refinancing a property.

Initially, you must provide documents like current lease agreements and appraisal reports to validate the rental income.

In certain scenarios, tax returns can be an alternative to lease agreements, especially when the property was acquired or rented out before the latest tax period or temporarily out of service for repairs or renovations.

The documentation required for validating rental income includes:

  • Current lease agreements to confirm the rent amount and the agreement's validity.

  • Appraisal reports (Form 1007 or 1025, as applicable), to determine the rental property's market value and rent potential.

  • Most recent year's tax returns (including Schedule E), for refinancing with a history of rental receipt, to showcase income from rental properties.

  • Specific appraisal forms are needed for properties not currently rented in lieu of lease agreements.

Rules for Using Rental Income from Multiple Rental Properties

For borrowers owning multiple rental properties, there are specific guidelines for calculating and aggregating the rental income from these properties.

Each property's rental income is determined individually, and all the incomes (or losses) are combined. This total is then used to adjust the borrower's gross income or monthly obligations.

This process ensures a comprehensive assessment of the borrower’s income from rentals, which is crucial for loan qualification.

The key considerations include documenting each property's rental income, calculating the net income by subtracting expenses, and understanding how the aggregated income affects the borrower's financial situation in the context of mortgage applications.

Properties with positive net rental income contribute to the borrower's gross income, enhancing their loan qualification prospects.

On the other hand, properties with a net loss increase the borrower's monthly obligations, potentially affecting loan eligibility.

Therefore, it's essential for borrowers with multiple rental properties to accurately calculate and report their rental income to maximize their mortgage qualification potential.

Impact of Rental Income History on Loan Qualification

A history of rental income or property management experience significantly impacts loan qualification.

Lenders look favorably on borrowers with at least one year of rental income history or documented property management experience, which suggests stability and reliability in generating rental revenue.

This background allows for more flexibility in considering rental income towards qualifying for a mortgage.

It means there's no cap on the amount of rental income that can be used for qualification purposes, whether it comes from a principal residence, an investment property, or a departure residence that's being retained.

For borrowers with less than a year of rental income history or no property management experience, limitations are placed on how much rental income can be considered.

In such cases, rental income for a principal residence cannot exceed the PITI (Principal, Interest, Taxes, and Insurance) of the subject property to be added to the borrower's gross income. For investment properties, the rental income can be used to offset the PITI of the subject property.

The documentation and calculation of this income are crucial, involving appraisal reports and possibly tax returns or current lease agreements, to establish the income's legitimacy and impact on the borrower's financial picture.

Documenting Rental Income: Tax Returns vs. Lease Agreements

Lease agreements can sometimes be used instead of tax returns to document rental income under specific circumstances.

This approach is generally acceptable in situations such as when you're dealing with a retained departure residence, a newly purchased investment property with no tax return history, or if the property was placed into service before the most current tax period.

If the property was not used for an extended period, perhaps due to repairs, the borrower's tax return might be required to document this "out of service" period. Lenders may also allow exceptions based on their judgment, which must be documented thoroughly.

When using lease agreements exclusively, certain documents are required. These include Form 1007 or Form 1025, as applicable, or evidence that the lease terms are in effect, which could be two months of consecutive bank statements or electronic transfers from renters.

If the agreement is new, copies of the security deposit and the first month's rent receipt with proof of deposit are needed. These rules help ensure the rental income is legitimate and stable enough to count towards mortgage qualification.

Rules for Refinancing with or Without a History of Rental Receipt

When refinancing a property, whether you have a history of rental income or not plays a crucial role in the documentation process and how lenders evaluate your application.

Here's a breakdown of the necessary steps and documentation based on the rental income history:

With a History of Rental Receipt

For borrowers who have a history of receiving rental income, the documentation required includes:

  • Appraisal and Form 1007 or 1025, as applicable, to assess the property's value and rental income potential.

  • Tax returns from the most recent year, including Schedule E, to demonstrate the income received from the rental property.

  • Alternatively, current lease agreements may be used if the borrower can document a qualifying exception.

This documentation helps lenders verify the stability and reliability of the rental income, which can be crucial for loan approval.

Without a History of Rental Receipt

For those without a prior history of rental income, the approach focuses on establishing the potential income the property can generate:

  • Appraisal and Form 1007 or 1025 are still required to evaluate the property.

  • Current lease agreements must be presented to demonstrate the terms under which the property will generate income.

Rules for Using Rental Income from a Departing Residence

Rental income from a departing residence can significantly impact mortgage qualification, providing an opportunity for borrowers moving out of their current home to use this income towards qualifying for a new mortgage.

There are specific conditions and documentation requirements to include this income effectively.

Equity Requirements

Borrowers must have at least 25% equity in the retained residence. The lender orders an appraisal to verify this. The appraisal must not be FHA-specific but must confirm the equity level.

Lease Agreement

A fully executed lease agreement with a minimum duration of one year is required. This document must detail the rental arrangement between the borrower and the tenant.

Calculation of Rental Income

The rental income considered will be the lesser of 75% of the fair market rent or 75% of the actual lease income. This conservative approach considers potential vacancies and maintenance costs associated with rental properties.

Proof of Rental Income

Borrowers must provide proof of the security deposit or the first month's rent. This could include bank statements showing the deposit or other relevant financial documents.

Distance Consideration

For rental income from the departing residence to be considered, the borrower often needs to be relocating a significant distance from their current home, typically more than 100 miles, unless they are moving out of a multi-unit property they lived in and rented out other units.

Bottom Line

Rental income can be a strong asset in your mortgage application, offering immediate financial benefits and long-term investment opportunities.

This guide has outlined the essentials for including rental or boarder income, with detailed steps and documentation required across various loan types.

Whether you're a seasoned landlord or considering renting out part of your home, understanding these rules can significantly improve your mortgage prospects.

Remember, preparing and presenting your rental income can open doors to favorable mortgage options.

Ready to leverage your rental income for a mortgage? Visit MakeFloridaYourHome for expert advice and assistance tailored to your unique situation.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

Find The Right Mortgage

For more than 20 years, Phil have been helping customers achieve their home purchase and refinance goals by providing them with invaluable resources and support.

Schedule a FREE Consultation
Phil Ganz