By Brandon Sooknanan, Founder of StatementReady
Rental income can show up on a loan file in several ways: a borrower with a duplex, a landlord buying another unit, a self-employed borrower whose income includes a rental. Before it goes into a debt-to-income ratio, someone has to turn the documents into a monthly figure. The calculator offers two starting points: the Schedule E on the tax return, or a lease. This post walks through the arithmetic for both and shows a free calculator that does the math and leaves the lender's rules to the lender.
Method 1: Schedule E
If the property is on the borrower's tax return, Schedule E gives you rents received and total expenses. Some expenses on that form are non-cash or are paid through the mortgage, and the lender may let you add them back. The calculator has fields for:
- Rents received (Schedule E)
- Total expenses (Schedule E)
- Depreciation
- Mortgage interest
- One other add-back you enter
- Months in service (12 for a full year)
Monthly = (rents received − total expenses + the add-backs you enter) ÷ the months you enter.
Round-number example: rents received $30,000, total expenses $24,000, depreciation $5,000, mortgage interest $7,000, 12 months.
(30,000 − 24,000 + 5,000 + 7,000) ÷ 12 = 18,000 ÷ 12 = $1,500.00 per month
The months field matters when a property was in service for only part of the year. Enter 7 and the same figures are spread over 7 months, not 12. The page also shows the annual figure and the months used, so a reviewer can see the inputs at a glance.
Method 2: Lease rent with a factor
When there's a lease and no tax-return history for the property, switch the mode to Lease rent:
Monthly = lease rent × (100% − the vacancy or expense factor you set) − the monthly payment you enter (if any).
Example: lease rent $2,000 with a 25% factor and no payment entered: 2,000 × 75% = $1,500.00 per month.
The factor field is required and labeled "from the lender." The calculator doesn't set one. Which factor applies and how the property's payment is treated are the lender's calls, so use the factor the lender gives you.
What it deliberately leaves out
- No default factor and no list of allowed add-backs. It adds only what you enter.
- No decision. It shows a monthly figure, not an approval. The lender makes all underwriting decisions.
- Nothing sent. It runs in your browser, and what you type isn't sent or stored.
It also isn't the Fannie Mae rental income worksheet. StatementReady isn't affiliated with or endorsed by Fannie Mae, Freddie Mac or any lender; use the lender's form where required.
Putting it with other income
Rental income is one piece. Add the monthly result to the borrower's other income in the free mortgage DTI calculator to see front-end and back-end ratios for your own review. If the borrower is also self-employed, the self-employed income calculator handles Schedule C, 1099 and expense-factor math the same way: formula shown, nothing decided for you.
Try it
The rental income calculator is free and needs no account. Pick Schedule E or Lease rent, enter the figures, and the formula appears under the result.
For bank statement loan files, StatementReady builds the income worksheet from uploaded statement PDFs and checks whether each statement's transactions add up to its printed balances. It assists your review of the loan file; the lender makes all underwriting decisions.
Not legal or tax advice. StatementReady isn't affiliated with or endorsed by Fannie Mae, Freddie Mac or any lender.
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