Fill Out Your Fannie Mae 1037 Form

What is the Fannie Mae 1037 form used for?

The Fannie Mae 1037 form is primarily a Rental Income Worksheet designed for two to four-unit properties that qualify as principal residences. It assists lenders in calculating the monthly qualifying rental income for these properties. Accurate calculations are essential for assessing borrower eligibility and determining debt-to-income ratios. Without this form, evaluating rental income can be inefficient and less reliable.

What documents are required when completing the Fannie Mae 1037 form?

When filling out the Fannie Mae 1037 form, you will need either Schedule E from the IRS Form 1040 or a Lease Agreement (or Fannie Mae Form 1025). Schedule E includes detailed financial information about the rental property, while a Lease Agreement provides the terms of rental occupancy. These documents help establish the income generated by the property to calculate qualifying rental income accurately.

How is the monthly qualifying rental income calculated?

To calculate monthly qualifying rental income, follow one of two paths: using Schedule E or the Lease Agreement/Fannie Mae Form 1025. If using Schedule E, you first calculate your adjusted rental income by accounting for various expenses and then divide that amount by the number of months the property was in service. If using the Lease Agreement or Form 1025, gross monthly rent is multiplied by 75% to account for potential vacancies and expenses. The calculated figures help determine your monthly rental income.

What should I do if Fair Rental Days are not reported?

If Fair Rental Days are not included in the documentation, assume that the property is in service for 12 months. However, if there is evidence indicating a shorter rental period, adjust the calculation accordingly. This assumption helps ensure that your calculations remain as accurate as possible even when data is incomplete.

Is there a maximum number of rental units that can be included in the calculation?

Yes, when calculating monthly qualifying rental income, you may include rental income from up to three non-owner-occupied rental units. Income from the unit occupied by the borrower cannot be considered. This limitation safeguards lenders against inflated income calculations and provides a more accurate assessment of the borrower’s financial situation.

How does the qualifying impact of rental income affect the borrower’s financial evaluation?

The qualifying impact of rental income directly influences the borrower’s financial evaluation and debt-to-income ratio. To determine the impact, combine the monthly qualifying rental income with the borrower’s monthly qualifying income. Additionally, the full amount of the PITIA (Principal, Interest, Taxes, Insurance, and Association dues) must be included in the borrower’s housing expenses. This process ensures that all financial obligations are accurately accounted for during the lending process.

Completing the Fannie Mae 1037 form is an important task for many seeking to establish rental income. However, several common mistakes can lead to complications or inaccuracies in the documentation. It is essential to pay attention to detail and understand the requirements to avoid these pitfalls.

One mistake frequently made is improper documentation of rental income. Many individuals rely solely on personal records or informal agreements, failing to provide the required Schedule E or lease agreements. Without proper documentation, the income may be deemed unverifiable, which can negatively impact loan approval chances. It is crucial to submit official documents that reflect actual rental activity.

Another common error involves miscalculating the number of months the property has been in service. Individuals often neglect to check the Fair Rental Days reported on Schedule E. If this figure is not available, it is assumed the property was in service for 12 months, potentially leading to an inflated rental income calculation. Applicants must ensure they accurately account for the rental service period to reflect realistic income figures.

Many also struggle with accurately calculating the monthly qualifying rental income. When using Schedule E, for example, failing to identify and subtract all applicable expenses can inflate the rental income. It is important to meticulously record all expenses, such as insurance, tax, and HOA dues, as these directly affect the adjusted rental income calculation. A lack of attention to this step may yield a misleading representation of the financial situation.

Additionally, errors can occur during the interpretation of net rental income derived from lease agreements or Fannie Mae Form 1025. Some mistakenly assume that merely providing the gross monthly rent suffices. It is vital to apply the 75% adjustment to account for vacancies and maintenance expenses. This adjustment is crucial in obtaining a realistic figure that lenders will consider.

Finally, many overlook the importance of properly integrating the rental income into the overall financial picture when determining qualifying impacts. It is essential to combine the monthly qualifying rental income with the borrower’s qualifying income accurately. Misrepresenting this total can lead to complications in debt-to-income calculations and affect the final loan outcome.

By being aware of these common mistakes and taking the necessary steps to avoid them, individuals can emerge with accurate and favorable rental income documentation. Thorough preparation and attention to detail will serve to benefit them in the long run.

The Fannie Mae 1037 form is essential for documenting rental income for a principal residence that is a 2- to 4-unit property. Alongside this form, several other documents are commonly used to ensure accurate assessment and compliance. Below is a brief overview of these important forms and documents.

• Schedule E (IRS Form 1040): This form details rental income and expenses for different rental properties, allowing property owners to report profits or losses on their tax returns.
• Lease Agreement: A legal contract between the landlord and tenant specifying the terms of rent, duration, and the responsibilities of both parties. It provides essential data like rental amounts and lease duration.
• Fannie Mae Form 1025: This form provides a detailed analysis of the rental property’s market rent. It helps in determining the potential monthly income based on the property's location and condition.
• Mortgage Note: A document that outlines the borrower's promise to repay the loan according to specified terms. It includes the interest rate, payment schedule, and consequences of default.
• Property Appraisal Report: An assessment prepared by a licensed appraiser that evaluates the property's market value. This report is vital for determining both its rental and sale potential.
• Insurance Policy Documentation: These documents outline the type of insurance coverage held on the property. They may be required to protect against potential damage or liability claims.
• Tax Returns: The borrower’s previous tax returns help verify income reported from rental units and ensure consistency with Schedule E information.
• Verification of Employment (VOE): A form used to verify a borrower’s employment status and income. This can help the lender confirm financial stability in conjunction with rental income documentation.

These documents play a crucial role in the assessment process for rental income. Together, they help establish a clear financial picture of the property and the borrower, facilitating a smoother transaction for everyone involved.

• Schedule E (IRS Form 1040): This form is used to report rental income and expenses on personal tax returns. It serves to calculate the net rental income, similar to how the 1037 form estimates monthly qualifying rental income.
• Lease Agreement: A formal contract between a landlord and tenant, detailing the rental period and conditions. The rental income from the lease agreement can be calculated in a manner similar to the method specified in the 1037 form.
• Fannie Mae Form 1025: This form provides market rent data for properties. It is used similarly to the 1037 form to assess rental income for underwriting purposes.
• Rental Property Operating Expenses Worksheet: This document lists various expenses related to rental properties. Like the 1037 form, it captures necessary financial details to determine qualifying rental income.
• Form 8825 (IRS): Used for reporting rental real estate income and expenses by partnerships or S corporations. This form similarly breaks down rental finances, aiding in income validation like the 1037 form.
• Net Income Calculation Sheet: An internal document used by mortgage companies to summarize rental income and expenses. It functions similarly to the 1037 form in that it calculates net qualifying income.
• Profit and Loss Statement: A financial report that summarizes revenues, costs, and expenses to show net profit or loss. This can be used in conjunction with the 1037 form to provide a broader view of rental income operations.

When completing the Fannie Mae 1037 form, adherence to guidelines ensures accuracy and avoids delays. Below is a concise list of actions to take and to avoid during this process.

• Do: Use Schedule E or a lease agreement to accurately document rental income.
• Do: Clearly identify all expenses on Schedule E to ensure proper adjustments are made to rental income.
• Do: Divide Fair Rental Days by 30 to determine the number of months the property was in service.
• Do: Ensure that the property is evaluated according to the correct guidelines for the number of rental units.

• Don't: Skip providing evidence for extraordinary expenses; always include documentation.
• Don't: Ignore the requirement to account for vacancy loss and maintenance expenses when calculating rental income.
• Don't: Enter information without double-checking for accuracy and completeness.
• Don't: Assume that all expenses can be added back without verifying their eligibility on Schedule E.

• Fannie Mae Form 1037 is only for single-family homes. This form can be used for 2- to 4-unit properties, not just single-family residences.
• You must have a Schedule E to calculate rental income. While Schedule E can assist, it is not the only method. Lease agreements or Fannie Mae Form 1025 can also be used.
• Rental income is calculated the same way for all properties. The calculation varies based on if you are using Schedule E or a lease agreement.
• You cannot include any expenses when calculating rental income. Certain expenses can be added back when determining adjusted rental income, as specified in the form.
• Only landlords can use Form 1037. This form is available to any borrower who has qualifying rental income, not just landlords.
• The number of months a property is in service must always be 12. If fair rental days are not reported, it is typically considered in service for 12 months unless evidence indicates otherwise.
• All rental units must be included in the income calculation. Only up to three non-owner-occupied rental units should be included when calculating rental income.
• Fannie Mae Form 1037 is only for new purchases. This form is applicable for purchases and also for properties acquired after the most recent tax filing.
• All rental income sources are treated the same. Income from non-owner-occupied units is treated differently than income from owner-occupied ones.
• Qualifying rental income is determined solely by subtracting expenses from gross rent. The calculation is more complex and includes multiple steps and adjustments.

Key Takeaways for Filling Out the Fannie Mae 1037 Form:

• Determine the number of months the property was in service by dividing Fair Rental Days by 30. If not reported, assume 12 months unless you have evidence of less.
• Use either Schedule E or a lease agreement to calculate monthly rental income. This step is crucial for accurately reflecting income from rental properties.
• Add back certain expenses like insurance and mortgage interest when using Schedule E, as they can help adjust the rental income figure higher.
• When using a lease agreement, multiply the gross monthly rent by 75% to account for potential vacancy and maintenance costs, allowing for a more realistic rental income estimate.