Reconciling Partial or No Rental History on Tax Returns If the borrower is not using any rental income from the subject property to qualify, the gross monthly rent must still be documented for lender reporting purposes. If there is a lease on the property that is being transferred to the borrower, see B2-1.5-03, Legal Requirements B7-2-05, Title Exceptions and Impediments, for additional information. If the property is not currently rented, lease agreements are not required and Form 1007 or Form 1025 may be used. The borrower’s most recent year of signed federal income tax returns, including Schedule 1 and Schedule E, orĬopies of the current lease agreement(s) if the borrower can document a qualifying exception (see Partial or No Rental History on Tax Returns below).įorm 1007 or Form 1025, as applicable, andĬopies of the current lease agreement(s). When the subject property will generate rental income and it is used for qualifying purposes, one of the following Fannie Mae forms must be used to support the income-earning potential of the property:įor one-unit properties: Single-Family Comparable Rent Schedule ( Form 1007) (provided in conjunction with the applicable appraisal report), orįor two- to four-unit properties: Small Residential Income Property Appraisal Report ( Form 1025).ĭoes the Borrower Have a History of Receiving Rental Income From the Subject Property?įorm 1007 or Form 1025, as applicable, and either Refinance transactions of a property that experienced significant rental interruptions such that income is not reported on the recent tax return (for example, major renovation to a property occurred in the prior year that affected rental income). Refinance transactions in which the borrower purchased the rental property during or subsequent to the last tax return filing or Examples of scenarios that justify the use of a lease agreement are If the borrower does not have a history of renting the subject property or if, in certain cases, the tax returns do not accurately reflect the ongoing income and expenses of the property, the lender may be justified in using a fully executed current lease agreement. If a borrower has a history of renting the subject or another property, generally the rental income will be reported on IRS Form 1040, Schedule E of the borrower’s personal tax returns or on Rental Real Estate Income and Expenses of a Partnership or an S Corporation form (IRS Form 8825) of a business tax return. General Requirements for Documenting Rental Income
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