Form 1038 - Rental Income Worksheet - Norcom Partners
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1Rental Income Worksheet
Individual Rental Income from Investment Property(s): Monthly Qualifying Rental Income (or Loss)
Investment
Investment Property
Documentation Required:
Property Address
Address
Schedule E (IRS Form 1040) OR
Enter
Lease Agreement or Fannie Mae Form 1007 or Form 1025
Step 1. When using Schedule E, determine the number of months the property was in service by dividing the Fair Rental Days by 30.
If Fair Rental Days are not reported, the property is considered to be in service for 12 months unless there is evidence of a shorter term of service.
Step 1. Result:
The number of months the property was in service:
Result
Step 2. Calculate monthly qualifying rental income (loss) using Step 2A: Schedule E OR Step 2B: Lease Agreement or Fannie Mae Form
1007 or Form 1025.
Step 2 A. Schedule E - Part I
A1
Enter total rents received.
Enter
A2
Subtract total expenses.
Subtract
A3
Add back insurance expense.
Add
A4
Add back mortgage interest paid.
Add
A5
Add back tax expense.
Add
A6
Add back homeowners’ association dues.
Add
This expense must be specifically identified on Schedule E in order to add it back.
A7
Add back depreciation expense or depletion.
Add
A8
Add back any one-time extraordinary expense (e.g., casualty loss).
There
Add
must be evidence of the nature of the one-time extraordinary expense.
Equals adjusted rental income.
Total
A9
Divide by the number of months the property was in service (Step 1
Divide
Result).
Equals adjusted monthly rental income
Total
A10
Subtract proposed PITIA (for subject property) or
Subtract
existing PITIA (for non-subject property).
Step 2A. Result:
Monthly qualifying rental income (or loss):
Result
Step 2 B. Lease Agreement OR Fannie Mae Form 1007 or Form 1025
This method is used when the transaction is a purchase, the property was acquired subsequent to the most recent tax filing, or
the lender has justification for using a lease agreement.
B1
Enter the gross monthly rent (from the lease agreement) or
market rent (reported on Form 1007 or Form 1025).
Enter
For multi-unit properties, combine gross rent from all rental units.
B2
Multiply gross monthly rent or market rent by 75% (.75).
The remaining
x.75
x.75
Multiply
25% accounts for vacancy loss, maintenance, and management expenses.
Equals adjusted monthly rental income.
Total
B3
Subtract proposed PITIA (for subject property) or existing PITIA (for non-
Subtract
subject property).
Step 2B. Result:
Monthly qualifying rental income (loss):
Result
Step 3. Determine the qualifying impact using the result of Step 2A or Step 2B.
If the combined result of Step 2A or 2B is positive, add the positive amount to the borrower’s
monthly qualifying income.
Because the PITIA expense was included in the calculations above, do not
add it to the debt-to-income (DTI) ratio.
If the combined result of Step 2A or 2B is negative, include the amount of the loss in the
borrower’s monthly expenses when calculating the DTI ratio.
DU Data Entry
Monthly Income and Combined Housing Expenses
Mortgage Liabilities
Subject
Enter the amount of the monthly qualifying income (positive result) or
For refinance transactions, identify the
Property
monthly qualifying loss (negative result) in “Subject Net Cash.”
mortgage as a subject property lien.
Non-Subject
Enter the amount of the monthly qualifying income (positive result) or
Identify the mortgage as a rental
Property
monthly qualifying loss (negative result) in “Net Rental.”
property lien.
Refer to the Rental Income topic in the Selling Guide for additional guidance.
Fannie Mae Form 1038
09.30.2014
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