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Policy brief

Departing Residence Rental Income: Lease vs Market Rent

Fannie Mae's SEL-2026-08 created a new Selling Guide section for rental income from a departing residence — and ended the lease-based calculation. Here is the new math and the decision path.

Mortgage File IQ policy brief · October 2, 2026 · Educational only — not underwriting guidance.

The short version

Fannie Mae Announcement SEL-2026-08 (Sept 2, 2026) created Selling Guide section B3-3.8-05, covering rental income from a departing residence — the borrower's current primary home being converted to an investment property when buying a new primary residence. The headline rule: "Lease agreements are not permitted for any departing residence." A signed lease can no longer establish rental income. Instead, lenders must use market-supported monthly income, apply a 25% vacancy/expense haircut, and net it against the departing residence's full PITIA. A surplus offsets that payment only — it is never added to qualifying income. A shortfall is included in the DTI.

Primary source: Fannie Mae Announcement SEL-2026-08: Selling Guide Updates (Sept 2, 2026)

What changed

1. The lease no longer counts — for any departing residence.

Under B3-3.8-05, an executed lease cannot be used to document rental income from a departing residence, period. If your income worksheet adds lease rent as "other income" for a borrower converting their current home to a rental, that calculation is now wrong. Files still relying on a lease need to be flagged and reworked.

2. Market rent must be documented one of three ways.

3. The new math: gross market rent × 75%, minus full PITIA.

Take the documented gross monthly market rent, multiply by 75% (the 25% haircut covers vacancy and expenses), then subtract the departing residence's full PITIA — principal, interest, taxes, insurance, and HOA. That is the net rental figure.

4. Surplus offsets the payment only; shortfall hits DTI.

If the result is positive, the surplus may offset the departing residence's payment only — it cannot become extra qualifying income. If the result is negative (a shortfall), that shortfall is included in the borrower's DTI. There is no scenario where departing-residence rental income boosts qualifying income beyond neutralizing its own payment.

5. Effective for applications on or after November 1, 2026.

The new section is mandatory for loans with application dates on or after November 1, 2026. Lenders are encouraged to adopt it immediately — which means files in the pipeline now should already be calculated the new way.

Lease vs Market Rent — the new decision path

  1. Is the property a departing residence? (Borrower's current primary home, converting to investment while buying a new primary.) If no — this section doesn't apply. If yes — continue.
  2. Is there a signed lease? It doesn't matter. Lease agreements are not permitted to establish rental income for any departing residence.
  3. Get documented market rent — via a complete appraisal with market rents, Form 1007, or a market analysis tool with at least 3 comparable rentals in the same market area/subdivision.
  4. Multiply gross market rent by 75% — the 25% vacancy/expense haircut.
  5. Subtract the departing residence's full PITIA (principal, interest, taxes, insurance, HOA).
  6. Apply the result: surplus → offsets the departing payment only, never added to qualifying income. Shortfall → included in DTI.

What this means for you

Loan officers: Any pre-approval or file that used lease rent to qualify a borrower buying a new primary while keeping the old home needs to be recalculated. The qualifying income on those files just changed — check them before they reach underwriting.

Processors: Rebuild the income worksheet logic: pull market rent from the 1007 or appraisal (not the lease), apply the 75% factor, net against the departing PITIA, and flag any file still relying on a lease. The lease is now a red flag, not a data source.

Underwriters: Expect a wave of files calculated the old way during the transition. The adoption-encouraged period means some lenders will switch early — verify which calculation the file used and confirm it matches B3-3.8-05 for applications on or after November 1, 2026.

Sources

Educational only: Mortgage File IQ tools identify gaps for human review. They don't decide eligibility, approval, or clearance — that's the underwriter's job. This brief is not underwriting guidance.

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