Fannie Mae Bans Leases for Departing Home Rent
Fannie Mae requires market data for departing home rent, ending lease reliance and altering debt-to-income calculations for move-up buyers.
Key points
- Fannie Mae bans lease agreements for documenting rent from a borrower's current home.
- Lenders must use appraisals or market tools with at least three comparable rentals.
- A 25% vacancy reduction is applied to rent, which only offsets PITIA costs.
Fannie Mae prohibits the use of lease agreements to document rent from a departing residence. This rule change takes effect for all loan applications submitted on or after November 1.
Lenders must now rely on appraisals or market analysis tools to determine fair value. This shift removes a key barrier for buyers who have not yet secured a tenant.
Documentation Standards Shift From Leases
According to National Mortgage Professional, lenders can no longer accept a signed lease as proof of income. They must instead use a single-family comparable rent schedule or a market analysis tool.
Market analysis tools require at least three comparable rental properties in the same area. This approach aligns Fannie Mae closer to Freddie Mac by removing the need for a specific tenant.
Vacancy Reduction Limits Usable Rent
Fannie Mae mandates a twenty-five percent reduction from the documented market rent. This deduction accounts for expected vacancy and operating expenses before any calculation begins.
The resulting figure cannot be added to the borrower's qualifying income. It serves only to offset the principal, interest, taxes, and insurance on the old home.
Impact On Debt To Income
If the reduced rent does not cover the full housing payment, the shortfall remains a debt. This amount must be included in the borrower's monthly debt-to-income ratio.
This method helps move-up buyers qualify without selling their current property first. It provides a standardized way to value the asset based on market data rather than a specific contract.
