Fannie Mae issued Selling Guide Announcement SEL-2025-08 (Announcement), setting forth updates to the Selling Guide. Per the Announcement, Fannie Mae:

• Amended rental income policy to allow use of income from an accessory dwelling (ADU) unit to be considered towards qualifying income, provided all of the following requirements are met:
  • The property must be a one-unit, principal residence and is limited to purchase and limited cash-out refinance transactions;
  • The rental income may only be derived from one ADU even if multiple ADUs exist; and
  • The amount of rental income used for qualifying purposes from the ADU is limited to 30% of the borrower’s total qualifying income;
• Updated documentation requirements for loans with rental income reported on partnership or S corporation federal business tax returns using Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) to align with those applicable to rental income reported on Form 1040 (Schedule E-Supplemental Income and Loss) of federal personal tax returns, specifically, when the borrower receives only rental income reported on the Form 1065 (Schedule K-1), lenders must obtain the most recent 1 year federal business income tax return for rental income reported on Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) which aligns with documentation requirements for rental income reported on Form 1040 (Schedule E- Supplemental Income and Loss) for individual borrowers. Additionally, all rental income reported on partnership or S corporation returns using Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) will now be classified as self-employment income, regardless of the borrower’s personal obligation on the associated mortgage; and
• Revised the amount of cash back allowed on all limited cash-out refinance transactions to not exceed the greater of 1% of the unpaid principal balance of the new loan or $2,000. 

Revisions related to rental income from an ADU, for loans submitted to Desktop Underwriter, will be effective with Desktop Underwriter version 12.1 and updated in Q1 2026, to include eligibility for ADU rental income. Revisions related to rental income from an ADU, for loans eligible for manual underwriting, are effective October 8, 2025. Revisions related to the amount of cash back allowed on all limited cash-out refinance transactions are effective October 8, 2025. Revisions related to updated documentation requirements for loans with rental income reported on partnership or S corporation federal business tax returns using Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) are effective for all applications dated on or after February 1, 2026 (lenders are, however, encouraged to implement these changes immediately.

Click to view the Fannie Mae Selling Guide Announcement 2025-08: https://www.tenaco.com/wp-content/uploads/2025/10/Fannie-Mae-Selling-Guide-Announcement-2025-08-10-08-25.pdf