Fill in Your Fannie Mae 1037 Template

What is the Fannie Mae 1037 form used for?

The Fannie Mae 1037 form is a Rental Income Worksheet specifically designed for principal residences that are 2- to 4-unit properties. It helps lenders assess the monthly qualifying rental income generated from these properties. By accurately documenting rental income, the form aids in determining a borrower’s financial eligibility for a mortgage.

What documentation is required to complete the Fannie Mae 1037 form?

To complete the Fannie Mae 1037 form, you will need either Schedule E from IRS Form 1040 or a lease agreement. If using Schedule E, ensure it reflects the total rents received from non-owner-occupied units. Alternatively, if you are using a lease agreement or Fannie Mae Form 1025, this information will also be necessary to calculate the rental income.

How do I calculate the number of months the property was in service?

To determine how many months the property was in service, divide the Fair Rental Days reported on Schedule E by 30. If Fair Rental Days are not provided, the property will be considered in service for 12 months, unless there is evidence to suggest a shorter period. This step is essential for accurate income calculations.

What steps are involved in calculating monthly qualifying rental income?

There are two main methods for calculating monthly qualifying rental income. The first method involves using Schedule E, where you will adjust the total rents received by subtracting total expenses and adding back specific costs such as insurance, mortgage interest, and homeowners’ association dues. The second method uses either a lease agreement or Form 1025, where you take the gross monthly rent and multiply it by 75% to account for vacancy and maintenance costs. The resulting amounts from both methods will help determine the monthly qualifying rental income.

What is the significance of the PITIA in the rental income calculation?

PITIA stands for Principal, Interest, Taxes, Insurance, and Association dues. It represents the total monthly housing expense for the borrower. When calculating the qualifying impact of rental income, the monthly qualifying rental income is added to the borrower’s qualifying income, and the full amount of PITIA is included in the debt-to-income ratio. This helps lenders assess the borrower’s overall financial health.

Can I include rental income from all units in a multi-unit property?

Yes, you can include rental income from all non-owner-occupied units in a multi-unit property. However, keep in mind that rental income is not eligible from the unit occupied by the borrower. The Fannie Mae 1037 form allows for a maximum of three rental units to be considered when calculating the qualifying rental income.

Where can I find additional guidance on rental income documentation?

For more detailed guidance on rental income documentation and calculations, you can refer to the Rental Income topic in the Fannie Mae Selling Guide. This resource provides comprehensive information to ensure compliance with Fannie Mae's requirements and to facilitate the mortgage process.

1. Not providing the correct address of the principal residence. Ensure the address matches official records to avoid confusion.

2. Failing to include all required documentation. Either Schedule E or a lease agreement is necessary for proper evaluation.

3. Miscalculating the number of months the property was in service. Use Fair Rental Days correctly or assume a 12-month period only when appropriate.

4. Omitting total rents received from non-owner-occupied units. Ensure all income sources are accurately reported.

5. Incorrectly subtracting total expenses from the rental income. Double-check calculations to ensure accuracy.

6. Not adding back specific expenses, such as insurance or mortgage interest, that are eligible for inclusion. Review Schedule E guidelines carefully.

7. Ignoring the need for evidence of one-time extraordinary expenses. Document all claims to support your entries.

8. Using gross monthly rent without applying the 75% rule for vacancy and maintenance. Remember to adjust for these factors.

9. Combining rental income from more than three units. Only include income from up to three non-owner-occupied units.

10. Not accurately reflecting the PITIA in the debt-to-income ratio. Use the correct figures based on whether the property is subject or non-subject.

The Fannie Mae 1037 form is a critical document used for calculating rental income from a principal residence, particularly for properties with 2 to 4 units. To ensure a comprehensive understanding of the rental income, several other forms and documents are often utilized alongside the 1037 form. Below is a list of these documents, each serving a unique purpose in the rental income assessment process.

• Schedule E (IRS Form 1040): This form is used to report income or loss from rental real estate. It provides a detailed breakdown of rental income, expenses, and depreciation.
• Lease Agreement: A legally binding contract between the landlord and tenant that outlines the terms of rental, including the amount of rent, duration, and responsibilities of each party.
• Fannie Mae Form 1025: This form is used to document the market rent for a property when a lease agreement is not available. It assists in determining the rental income potential based on market conditions.
• Property Appraisal: An assessment of the property's value conducted by a licensed appraiser. This document may include rental income estimates based on comparable properties.
• Tax Returns: Personal tax returns may be required to verify income, especially if the rental property income is reported on Schedule E.
• Bank Statements: These statements may be requested to confirm rental income deposits and demonstrate financial stability.
• Rental History Documentation: Records of past rental payments can help establish a pattern of income and tenant reliability.
• Property Management Agreement: If a property manager is involved, this document outlines their responsibilities and fee structure, which can impact net rental income.
• Debt-to-Income Ratio Calculation: This calculation helps assess the borrower’s ability to manage monthly payments and is crucial for determining loan eligibility.

Understanding these documents can help streamline the rental income verification process. Each form plays a vital role in ensuring that the rental income reported is accurate and reliable. Proper documentation can facilitate smoother transactions and contribute to informed decision-making.

The Fannie Mae 1037 form is similar to the IRS Schedule E, which is used by taxpayers to report rental income and expenses. Both documents require the reporting of total rents received and allow for the deduction of various expenses related to rental properties. Schedule E provides a detailed breakdown of income and expenses, enabling property owners to calculate their net rental income. This net income is then used to assess the financial viability of a rental property, similar to how the 1037 form calculates qualifying rental income for mortgage purposes.

Another document similar to the Fannie Mae 1037 form is the Lease Agreement. This legal contract outlines the terms under which a tenant rents a property from a landlord. Like the 1037 form, it specifies the rental amount and duration of the lease, which are essential for determining rental income. The lease agreement provides concrete evidence of rental terms, which can be used to verify income when filling out the 1037 form, especially when assessing monthly qualifying rental income based on the lease terms.

The Fannie Mae Form 1025 is also comparable to the 1037 form. This form is specifically designed to evaluate the market rent of a property that is not owner-occupied. Both documents focus on determining rental income but approach it from different angles. While the 1037 form allows for adjustments based on actual expenses, the Form 1025 provides a standardized method to assess market rent, which can be crucial for qualifying income calculations.

The HUD-1 Settlement Statement shares similarities with the Fannie Mae 1037 form in that it provides a comprehensive overview of financial transactions related to a property. While the HUD-1 is primarily used for closing costs and settlement details, it also includes information on rental income if applicable. This can help lenders understand the financial context of a property, much like how the 1037 form assesses rental income for mortgage qualification.

The Cash Flow Statement is another document that parallels the Fannie Mae 1037 form. This financial statement summarizes the cash inflows and outflows of a property, including rental income. Both documents aim to provide a clear picture of a property's financial performance. The Cash Flow Statement offers a broader view of financial health, while the 1037 focuses specifically on qualifying rental income for mortgage purposes.

Additionally, the Profit and Loss Statement (P&L) is similar to the Fannie Mae 1037 form as it outlines income and expenses for a specific period. Both documents are used to assess financial performance. The P&L provides a detailed account of all income sources and expenses, allowing property owners to evaluate profitability. This information can be crucial when determining qualifying rental income on the 1037 form.

Lastly, the Bank Statements can be considered similar to the Fannie Mae 1037 form in that they provide evidence of rental income. Lenders often review bank statements to verify deposits related to rental payments. This information supports the calculations made on the 1037 form regarding qualifying rental income. Both documents aim to establish a clear financial picture, ensuring that the rental income reported is accurate and reliable.

When filling out the Fannie Mae 1037 form, it is essential to follow specific guidelines to ensure accuracy and compliance. Below is a list of things to do and avoid.

• Do use Schedule E or a Lease Agreement to document rental income accurately.
• Do calculate the number of months the property was in service correctly, using Fair Rental Days.
• Do include all necessary adjustments when calculating adjusted rental income.
• Do ensure that any extraordinary expenses are documented with evidence.
• Do combine monthly rental income from all non-owner-occupied units, up to three units.

• Don't neglect to enter the address of the principal residence.
• Don't forget to account for vacancy loss and management expenses when calculating rental income.
• Don't use rental income from the unit occupied by the borrower in the calculations.
• Don't overlook the importance of accurate PITIA identification in the debt-to-income ratio.

• Misconception 1: The Fannie Mae 1037 form is only for single-family homes.

  This form is applicable to 2- to 4-unit properties as well. It is designed to assess rental income from these types of properties, not just single-family residences.

• Misconception 2: You cannot use both Schedule E and a lease agreement.

  In fact, the form allows for both methods. Borrowers can choose to calculate rental income using either Schedule E or a lease agreement, depending on their specific situation.

• Misconception 3: The number of months a property has been in service is always 12.

  This is not true. If Fair Rental Days are not reported, the property is considered to be in service for 12 months only if there is no evidence suggesting a shorter term. If there is evidence, the months in service may be less than 12.

• Misconception 4: All expenses can be deducted without documentation.

  Documentation is crucial. Certain expenses, such as homeowners’ association dues, must be specifically identified on Schedule E in order to be added back to the rental income.

• Misconception 5: Rental income is always fully counted in debt-to-income calculations.

  Only a portion of the rental income is considered. For instance, when using a lease agreement, only 75% of the gross monthly rent is counted to account for vacancy loss and other expenses.

Understanding the Fannie Mae 1037 form is crucial for accurately documenting rental income for a principal residence. Here are key takeaways to help you navigate the process:

• Purpose: The Fannie Mae 1037 form is designed to calculate qualifying rental income for properties with 2 to 4 units.
• Documentation: You will need either Schedule E (IRS Form 1040) or a lease agreement/Fannie Mae Form 1025 to support your income claims.
• Service Duration: Determine how many months the property was in service by dividing Fair Rental Days by 30. If not reported, assume 12 months unless proven otherwise.
• Income Calculation: Use Schedule E to calculate adjusted rental income, factoring in total rents received and various expenses.
• Expense Adjustments: You can add back certain expenses like insurance, mortgage interest, and HOA dues, but they must be specifically identified on Schedule E.
• Lease Agreement Method: If using a lease agreement, calculate rental income by taking gross monthly rent and multiplying by 75% to account for potential losses.
• Maximum Units: When calculating income from rental units, include only up to three non-owner-occupied units.
• Debt-to-Income Ratio: Combine the monthly qualifying rental income with the borrower’s monthly qualifying income to assess financial health.
• PITIA Consideration: Include the full amount of PITIA (Principal, Interest, Taxes, Insurance, and Association dues) in the debt-to-income ratio calculation.
• Refinance Transactions: For refinancing, identify the mortgage as a subject property lien to accurately reflect the borrower’s primary housing expense.

Using the Fannie Mae 1037 form correctly can significantly impact your loan application process. Ensure all calculations are accurate and supported by proper documentation to facilitate a smoother experience.