Fannie Mae Form 1039 09.30.2014
Refer to Rental Income topic in the Selling Guide for additional guidance.
Business Rental Income from Investment Property(s): Qualifying Impact of Mortgaged Investment Property PITIA Expense
IRS Form 8825 (filed with either IRS Form 1065 or 1120S) OR
Lease Agreement
Enter
Enter the mortgagee and the mortgage loan account number.
Enter
Step 1. When using IRS Form 8825, 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:
Step 2. Calculate monthly property cash flow using Step 2A: IRS Form 8825 OR Step 2B: Lease Agreement.
Step 2 A. IRS Form 8825 (IRS Form 1065 or 1120S)
Enter gross rents received.
Enter
Subtract
Add back insurance expense.
Add
Add back mortgage interest paid.
Add
Add
Add back homeowners’ association dues.
This expense must be specifically identified on Form 8825 in order to add It back.
Add
Add back depreciation expense or depletion.
Add
Add back any one-time extraordinary expense (e.g., casualty loss).
There must
be evidence of the nature of the one-time extraordinary expense.
Add
Equals adjusted rental income.
Total
Divide by the number of months the property was in service (Step 1 Result).
Divide
Equals adjusted monthly rental income.
Total
Subtract proposed PITIA (for subject property) or existing PITIA (for non-
subject property).
Subtract
Step 2A. Result: Monthly property cash flow:
Result
Step 2 B. Lease Agreement
This method is used in certain circumstances (e.g., when the property was acquired subsequent to the most recent tax filing or
the lender has justification for using a lease agreement).
Enter the gross monthly rent (from the lease agreement).
For multi-unit properties, combine the monthly qualifying income of all rental units.
Enter
Multiply gross monthly rent or market rent by 75% (.75). The remaining 25%
accounts for vacancy loss, maintenance, and management expenses.
Multiply x .75 x .75
Equals adjusted monthly rents.
Total
Subtract proposed PITIA (for subject property) or existing PITIA (for non-
subject property).
Subtract
Step 2B. Result: Monthly property cash flow:
Result
Step 3. Determine qualifying impact of the mortgaged investment property PITIA expense.
If the result of Step 2A or 2B is negative, include this loss, not to exceed the monthly PITIA
expense, in the debt-to-income ratio
If the result of Step 2A or 2B is positive, the full amount of the PITIA expense has been offset.
Do not include it in the debt-to-income ratio.
This worksheet provides a means of calculating an offset to the monthly PITIA. To add any net income to the borrower’s qualifying income,
additional requirements apply (e.g., two-year history vs. one-year history). Refer to the Self-Employment Income topic in the Selling Guide.
Monthly Income and
Combined Housing Expenses
Enter the amount of the negative monthly
property cash flow in “Subject Net Cash.”
If the monthly property cash flow is positive,
enter $0.00.
For refinance transactions, identify
the mortgage as a subject property
lien.
If REO Schedule is completed, confirm
that the “Net Rental Income” field
reflects either
the amount of the property cash
flow if it is negative, or
$0.00 if the monthly property cash
flow is positive.
Property
Enter the amount of the negative monthly
property cash flow in “Net Rental.”
If the monthly property cash flow is positive,
Identify the mortgage as a rental
property lien.
Form 8825, Line 2
Form 8825 Line 16
Form 8825, Line 7
Form 8825, Line 9
Form 8825, Line 11
Review Form 8825, Line 15
Form 8825, Line 14
Review Form 8825, Lines 3-15
Verified, ensure taxes, insurance and HOA dues are included.
Form 8825,
Line1
Click gray button to calculate the adjusted
monthly rental income. If A9=0, error shows.
See Result 2A and/or 2B Above
Calculator provided courtesy of
For more information, visit new.mi.genworth.com/self-employed-borrower-calculators
For full functionality, download PDF first before entering data. Please download before each calculation as calculators are updated periodically.
