Determining Rental Income for a Conforming Mortgage

Editor’s note: This post has been fully updated in 2026 for current Fannie Mae, Freddie Mac, and FHA guidelines on using rental income to qualify for a mortgage.

If you own rental property — or you’re buying one — that income can often be used to help you qualify for a mortgage. But “often” is doing some work in that sentence. How much of the rent counts, what documentation you’ll need, and how it’s calculated all depend on whether you already own the property, whether it’s currently leased, and which loan program you’re using.

The core principle: documented, consistent, likely to continue

Rental income is treated like any other variable income for mortgage qualifying — lenders want to see that it’s documented, that it’s consistent, and that it’s likely to continue. Because rental property comes with real carrying costs (vacancy, repairs, management), lenders don’t count 100% of the gross rent. Instead, they apply a standard reduction — commonly 25% — to arrive at a more conservative qualifying figure.

Beyond that core principle, the specifics depend on your situation:

Buying a new investment property

If you’re purchasing a property you plan to rent out, the lender needs to establish what the property will realistically rent for:

• Property is already leased: a copy of the current, fully executed lease agreement is used to document rental income.
• Property is vacant or not yet leased: the lender relies on “market rent” — an appraiser’s estimate of comparable rents in the area, documented on Form 1007 (Single-Family Comparable Rent Schedule).
• Either way, only 75% of the gross rental figure counts toward your qualifying income. The other 25% is treated as an allowance for vacancy and ongoing maintenance costs.

Refinancing a rental property you already own

If you’ve owned the rental for at least a full tax year, lenders will typically use your Schedule E from your most recent tax return to determine net rental income or loss, rather than relying on a lease alone. A few nuances:

• If the property was rented for only part of the previous year, you’ll need to explain and document why — a recent purchase, a renovation period, or a tenant transition are all common, acceptable reasons. The lender will average the income over the months the property was actually in service.
• Current, fully executed lease agreements are still required alongside the tax return documentation.
• If the property shows a net loss on Schedule E, that loss is factored into your qualifying ratios as a liability — not simply ignored.

First-time landlords: a different set of rules

If you don’t yet have at least a year of landlord experience — meaning this would be your first rental property — the rules are more conservative. In most cases, projected rental income can only be used to offset the new property’s own mortgage payment, not to add to your overall qualifying income. If the projected rent doesn’t fully cover the payment, the shortfall counts against you in your debt-to-income ratio; if it more than covers it, the surplus generally isn’t credited as additional income the way it would be for an experienced landlord.

This is one of the more misunderstood rules in rental income qualifying, and it catches a lot of first-time investors by surprise. If this is your first rental property, it’s worth talking through the math before you write an offer.

Buying a duplex, triplex, or fourplex to live in

If you’re buying a 2–4 unit property and plan to occupy one unit as your primary residence, the rental income from the other unit(s) can generally be used to help you qualify — and because you’re occupying the property, you may qualify for owner-occupied financing with a lower down payment than a true investment property would require. The same market-rent-or-lease documentation and 75% factor generally apply to the non-owner-occupied units.

ADU and DADU rental income

With accessory dwelling units increasingly common across Washington State — especially in Seattle and other cities that have relaxed ADU/DADU zoning — rental income from an ADU on your primary residence can sometimes be used for qualifying, with a few restrictions:

• ADU rental income is generally capped at 30% of your total qualifying income.
• It’s typically only usable for purchase transactions or limited cash-out refinances, not standard rate-and-term refinances.
• Some programs require a landlord education course before ADU rental income can be counted, particularly for first-time landlords.

Read: Mortgages for ADUs and DADUs in Washington State

Converting your current home into a rental to buy your next one

A related but distinct scenario: you’re not buying an investment property outright, you’re planning to keep your current home as a rental and buy a new primary residence. This comes with its own equity requirements, documentation rules, and considerations — it’s common enough that it deserves its own explanation.

Read: Converting Your Existing Home Into a Rental to Buy Your Next One

How loan type affects rental income qualifying

Conventional loans (Fannie Mae / Freddie Mac): the guidelines described above — the 75% factor, Schedule E for existing rentals, Form 1007 market rent for new ones — are the conventional standard. 👉 Read: Conforming Mortgage Guide

FHA loans: [VERIFY current FHA rental income offset percentage and any recent Handbook updates before publishing]. FHA also allows rental income to be used in relocation scenarios where the borrower is moving outside reasonable commuting distance from the property being vacated. 👉 Read: FHA Mortgage Guide

USDA loans: USDA is designed for owner-occupied primary residences in eligible rural areas and generally isn’t used for investment property purchases. [VERIFY current USDA treatment of existing rental income the borrower already receives, for DTI purposes on a primary-residence purchase].

DSCR loans: if your personal income doesn’t easily support qualifying, or you’d rather qualify based purely on the property’s own cash flow, a Debt Service Coverage Ratio (DSCR) loan qualifies you based on the property’s rental income relative to its payment — not your personal income or tax returns at all. This can be a strong option for investors scaling a rental portfolio. 👉 Read: DSCR Mortgage Guide for Washington State

Documentation checklist

Depending on your scenario, be prepared to provide:

• Current, fully executed lease agreement(s)
• Most recent two years of tax returns, including Schedule E, if you already own the property
• An appraiser’s market rent estimate (Form 1007) if the property is vacant or newly acquired
• Proof of security deposit received and deposited, if applicable
• Explanation and documentation for any gaps in rental history over the past year

Frequently asked questions

How much of my rental income counts toward qualifying?

For conventional loans, lenders typically count 75% of the documented gross rent, whether that’s from a signed lease or an appraiser’s market rent estimate. The remaining 25% accounts for vacancy and maintenance.

Can I use rental income if I’ve never been a landlord before?

Usually only to offset the new property’s own mortgage payment, not to add to your overall qualifying income. Once you have at least a year of documented landlord experience, the income can typically be counted more fully.

What if my rental property shows a loss on my tax return?

A net loss on Schedule E is factored into your debt-to-income ratio as a liability, not simply excluded from the calculation.

Can I count rental income from an ADU on my primary residence?

Often yes, though it’s generally capped at 30% of your total qualifying income, typically limited to purchase or limited cash-out refinance transactions, and may require a landlord education course.

Have a rental income scenario you’d like to run by me?

Rental income rules have a lot of “it depends” built into them, and the right documentation strategy varies by loan program and by your specific situation. If you’re buying, refinancing, or converting a property to a rental anywhere in Washington State, I’m happy to walk through the numbers with you.

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See the complete guide: Types of Income That Qualify for a Mortgage in Washington State

Rhonda Porter · Licensed Mortgage Advisor · NMLS #121324 · Washington State

Last reviewed: August 2026