How FHA counts rental income: the 75 percent rule

Which rental income this covers

The Handbook defines Rental Income as income received or to be received from the subject property or from other real estate holdings. Income from the subject property can count when the home is, or will be, a one-unit dwelling with an accessory dwelling unit, a two- to four-unit dwelling, or an acceptable one- to four-unit investment property. Income from commercial space cannot be included. The two sources, subject property and other holdings, follow different arithmetic, so choose the right line in the checker above.

When there is no history: the 75 percent rule

If you have no history of rental income from the subject property since the previous tax filing, the lender documents the rent with an appraisal. For two- to four-unit properties that means a small residential income property appraisal showing fair market rent; for a one-unit property, the standard appraisal report with a comparable rent schedule. Prospective leases are used if available. The lender then takes 75 percent of the lesser of the appraiser's fair market rent or the rent in the lease. The 25 percent haircut stands in for vacancy and upkeep.

Subject property: added to income

For the subject property, the net rental income is added to your gross income to get Effective Income. The Handbook specifically says the lender may not reduce your total mortgage payment by the net rental income. This is the opposite of how many people expect rent to work: the rent goes in the income column, and the full payment stays in the payment column. With $2,000 market rent and a $1,800 lease, the lesser is $1,800, 75 percent is $1,350, and $1,350 is added to monthly income.

The ADU cap

For a one-unit home with an accessory dwelling unit, the rental income from the ADU that counts as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify. The checker reads that as: the ADU rent can be at most 3/7 of your other income, because it then makes up 30 percent of the combined total. With $2,000 of other monthly income, the cap is about $857, so a $900 counted rent would be limited. That reading of the sentence is ours; ask the lender how it applies the cap.

Other real estate you own

For rent from other holdings, the lender deducts PITI from the 75 percent figure. With market rent of $1,600, a lease at $1,700 and PITI of $1,200, the lesser rent is $1,600, 75 percent is $1,200, and the net is zero. If market rent were $1,500 and PITI $1,300, the counted $1,125 would leave negative $175, which is carried as a debt. Positive net rental income is added to Effective Income and negative net rental income is included as a liability. If you are renting out a home you are moving out of, you must be relocating more than 100 miles from your current principal residence, with a lease of at least a year after closing and evidence of the security deposit or first month's rent. For a property with no rental history, the appraisal must also show you have at least 25 percent equity.

When there is a history: Schedule E

With a rental history, the lender uses your last two years of tax returns with Schedule E and averages the amount shown. Depreciation, mortgage interest, taxes, insurance and HOA dues on Schedule E may be added back to net income or loss. If you have owned the property for less than two years, the lender annualizes the rental income for the time you have owned it and documents the date of acquisition with the deed, closing disclosure or similar. For other holdings, averaging works only as long as you still own every property listed on that Schedule E.

Where this fits

Rental income is only one piece of qualifying income, and it feeds directly into the ratios on the debt-to-income limits page. Landlords who also earn business income should check the self-employment rules, since each source is analyzed on its own terms. Boarders in the subject property are a separate category with their own nine-of-twelve-months documentation rule that this page does not cover.

Sources

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, Update 18 PDF: Underwriting the Borrower Using the TOTAL Mortgage Scorecard, Rental Income: Rental Income Received from the Subject Property and Rental Income from Other Real Estate Holdings, Handbook pp. 243-246 (heading Income Requirements (TOTAL) (11/10/2026)(04/10/2025)). Read November 2, 2026.
• HUD, Single Family Housing Policy Handbook 4000.1 information page. Read November 2, 2026.

Text read: HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, the clean Update 18 PDF that HUD links from its Handbook 4000.1 information page (HUD lists it as the August 12, 2026 update). Section headings carry their own effective dates, given above for this page. Confirm current dollar limits and premium rates with an FHA-approved lender. This page paraphrases the Handbook and does not replace it. Page numbers cited are the Handbook's own and may be approximate; use the section headings to locate the text.