Fannie Mae Just Updated Its Rental Income Guidelines: What San Diego Borrowers and Investors Need to Know

Fannie Mae published an updated version of its Selling Guide on September 2, 2026 — and the rental income chapter (Section B3-3.8) received two meaningful updates this year, one already live and one taking effect November 1. Both have direct implications for San Diego homebuyers, homeowners with ADUs, and real estate investors using conventional financing.

Here's a plain-language breakdown of what changed, what it means, and who it affects — sourced directly from Fannie Mae's Selling Guide, Section B3-3.8-01, General Rental Income Information, published September 2, 2026.

Update 1 — ADU Rental Income Now Counts Toward Qualifying Income

Selling Guide Announcement SEL-2025-08 / DU Version 12.1, effective March 21, 2026

This is the update with the most immediate practical impact in San Diego, where ADU construction has been among the most active segments of the local housing market for several years running.

Before this change, if you were buying a home with an accessory dwelling unit — a backyard cottage, a converted garage, a basement apartment — that ADU's rental income could not be used to help you qualify for a conventional mortgage on your primary residence. The income existed and was real, but Fannie Mae's guidelines wouldn't count it.

That changed in March 2026. Rental income from an ADU can now be used as qualifying income on a conventional loan, subject to the following conditions:

• The subject property must be a one-unit principal residence
• The transaction must be a purchase or a limited cash-out refinance — standard cash-out refinances are not eligible
• Only one ADU's rental income can be counted, even if the property has multiple ADUs
• The ADU rental income used for qualifying cannot exceed 30% of the borrower's total qualifying income

That 30% cap is the key constraint. If your documented base income is $8,000 per month, you can use up to $2,400 per month of ADU rental income — no more. Desktop Underwriter (DU version 12.1) enforces this automatically on eligible submissions.

Documentation follows Fannie Mae's standard rental income requirements: a lease supported by a Comparable Rent Schedule (Form 1007) for new rentals, or Schedule E from tax returns if the ADU has a rental history.

Why this matters for San Diego: San Diego County has one of the highest concentrations of ADU activity in California, driven by state permitting reforms since 2019 and high housing costs that make rental income attractive. Buyers purchasing homes with existing permitted ADUs generating documented income can now use that income to qualify — which can meaningfully expand purchasing power on properties that previously required qualification on personal income alone.

Update 2 — Rental Income Policy Restructured for Clarity

Selling Guide Announcement SEL-2026-08, effective November 1, 2026 for most provisions

The September 2 update restructures the entire rental income section of the Selling Guide. Fannie Mae describes the purpose as simplifying the overall structure, improving clarity, addressing policy gaps, and better aligning the guidelines with how rental income transactions actually work in practice.

This is less a substantive policy reversal and more a clarification and reorganization — but the practical impact is meaningful because rental income underwriting has historically been one of the more inconsistently applied areas across different lenders.

A few specifics worth knowing from the current published guideline:

Property management experience requirement is now clearly defined. Lenders may only use positive rental income for qualifying if the borrower has at least 12 months of property management experience. The guideline specifies exactly how to document that experience: the most recent signed federal tax return (Form 1040) with Schedule E reflecting rental income received for any property and supporting 365 fair rental days; OR the most recent signed business federal tax return (Form 1065 or 1120S) with Form 8825; OR in certain situations, a lease agreement dated at least 12 months prior to application, provided the property has not yet appeared on a tax return.

If a borrower has less than 12 months of property management experience — or none — lenders may only use rental income to offset the property's PITIA (principal, interest, taxes, insurance, and association dues), not as positive qualifying income.

Lease agreement rules are tightened. The guideline now specifies exactly when a lender can and cannot use a lease agreement to determine qualifying rental income from an investment property. Permitted scenarios include purchase transactions with an existing lease transferring to the borrower, properties purchased during or after the most recent tax return filing period, properties with significant rental interruptions in the prior year, and properties placed in service in the current calendar year. Not permitted: using a lease for a departing residence, or for investment properties purchased within 45 days of the subject property.

For newly executed leases (dated within two months of the loan application), properties not reported on a recent tax return must have a minimum lease term of at least six months, with the initial payment due on or before the subject mortgage's first payment date. The lender must also obtain evidence that the lease has gone into effect — typically two consecutive months of bank statements showing rent payments, or for brand-new leases, copies of the security deposit and first month's rent with proof of deposit.

The treatment of rental income or loss is explicitly structured. For rental income related to the borrower's principal residence: positive qualifying rental income is added to total monthly income, and the full PITIA must be included in monthly obligations — the two cannot be netted. For rental income from any other property: when monthly qualifying rental income minus the full PITIA is positive, add it to income; when it's negative, add the net loss to monthly obligations. For borrowers with multiple rental properties, all non-subject property rental income or loss must be calculated separately and then aggregated.

What this means in practice: The November 2026 update primarily produces cleaner, more consistent underwriting rather than opening new eligibility doors. Lenders working from clearer, reorganized guidelines produce fewer inconsistent conditions and fewer late-stage surprises on rental income documentation. For borrowers in the pipeline or starting applications, these refined standards take effect November 1, 2026, though Fannie Mae is encouraging lenders to implement them immediately.

The Property Management Experience Requirement — Worth Understanding Carefully

One provision in the current published guideline is worth highlighting specifically because it affects first-time rental property buyers in a way that's not always communicated clearly.

If you are buying a rental property and have no prior property management experience — meaning you have never owned a rental property or documented rental income on a tax return — you cannot use the projected rental income to boost your qualifying income. You can only use it to offset the property's PITIA.

This doesn't mean the loan is unavailable. It means your qualification is based on your personal income alone, plus whatever offset the rental income provides against the new property's monthly payment. For buyers who were counting on rental income to clear a DTI threshold, this distinction matters and is worth clarifying with your lender before you're in contract.

For experienced investors with Schedule E history — particularly San Diego's active real estate investor community — this requirement is already met by existing tax return documentation.

How These Updates Affect Different Borrower Profiles

San Diego buyers purchasing a home with an ADU: The most actionable update. If you're buying a home with a legally permitted ADU generating documented rental income, that income can now help you qualify for a conventional mortgage on a purchase or limited cash-out refinance — up to 30% of your total qualifying income.

First-time real estate investors: The property management experience requirement means you'll generally qualify on personal income alone for your first rental property under Fannie Mae conventional guidelines. DSCR loans, which qualify based on the property's rental income relative to its debt service rather than personal income, are often the more practical path for first-time investors who don't have Schedule E history.

Experienced investors with multiple properties: Cleaner documentation standards and more explicitly structured treatment of rental income from multiple properties should mean more consistent underwriting across different lenders — a real improvement for portfolios where inconsistent lender interpretation has historically caused friction.

Self-employed borrowers with rental income through pass-through entities: A related change from SEL-2025-08 aligned documentation requirements for rental income flowing through partnership or S-corporation returns (Form 8825) with the one-year documentation standard already in use for Schedule E. If your rental income arrives via Schedule K-1, lenders now need only the most recent one-year business return.

The San Diego ADU Context

San Diego County's ADU market expanded significantly after California streamlined ADU permitting in 2019 and subsequent years. A meaningful portion of San Diego's housing stock now includes permitted ADUs — either built by current owners, inherited with a home purchase, or under construction.

The March 2026 Fannie Mae change resolves one of the most consistent frustrations expressed by San Diego buyers purchasing homes with ADUs: the income the ADU generates was real, documented, and verifiable — but under old guidelines, it didn't help qualify. That has changed for purchase and limited cash-out refinance transactions meeting the program requirements.

If you're buying a San Diego property with an ADU and want to understand how the rental income factors into your specific qualification, run the scenario before you're in contract rather than after.

Bottom Line

Two updates, clearly separated:

The March 2026 ADU rental income change (SEL-2025-08 / DU 12.1) is immediately actionable for San Diego buyers purchasing one-unit primary residences with ADUs on purchase and limited cash-out refinance transactions — up to 30% of total qualifying income.

The September 2026 policy restructuring (SEL-2026-08) takes effect November 1, 2026 but lenders are encouraged to implement now — producing more consistent, clearly documented rental income underwriting across the board.

Both sourced directly from Fannie Mae Selling Guide Section B3-3.8-01, General Rental Income Information, published September 2, 2026.

Cascada Mortgage Advisors, Inc. (NMLS #2470941, CA DRE #02206556) is a licensed San Diego mortgage broker with access to 100+ wholesale lenders offering conventional Fannie Mae programs, DSCR investor loans, and Non-QM alternatives for borrowers whose income doesn't fit conventional guidelines. Omar Michel (NMLS #398944, CA DRE #02131389) works with San Diego homebuyers and real estate investors across all product types and can run your specific rental income scenario against current guidelines.

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