The Quick Read: Rent you have not collected yet counts only in narrow cases, and rarely on a full cash-out loan. Rent from other units in a 2–4 unit home you live in can count, but only a reduced share of it is added to your income. Rent from an accessory dwelling unit (ADU) on a one-unit home generally does not count on a full cash-out, even though it can count on a limited cash-out. The answer turns on your property type, the loan type, and whether the rent has a history.
Key Terms Defined
Projected rent: Rent the lender estimates from a lease or an appraiser’s market-rent schedule, not rent you have already collected and reported.
ADU (accessory dwelling unit): A separate, self-contained living space on the same lot or inside the same home as your main residence, such as a basement apartment or a garage conversion.
Cash-out refinance: A new mortgage that pays off the old one and hands you the extra equity as cash.
Limited cash-out refinance: A refinance that pays off the first mortgage, the closing costs and any purchase-money second lien, with only a small amount of incidental cash back. Freddie Mac uses the phrase “no cash-out.”.
Market rent: What the appraiser says the unit would rent for, reported on a rent schedule form attached to the appraisal.
Boarder: Someone who rents a room inside your dwelling. A tenant in a separate ADU is not a boarder.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Does Projected Rent Count on a Cash-Out Refinance?
It depends on three things: the type of home, the type of refinance, and the loan program.
- A 2–4 unit home you live in: rent from the units you do not occupy can count toward qualifying, with limits.
- A one-unit home with an ADU: ADU rent may count on a purchase or a limited cash-out. Fannie Mae’s Selling Guide on subject-property rental income restricts it to those two transaction types, so it does not count on a full cash-out refinance.
- FHA: a one-unit with an ADU cannot use ADU rent as income on a cash-out refinance. FHA treats 2–4 unit rent separately.
- Your own unit: rent for the space you live in never counts.
Treat any promise that “your projected rent will count” with suspicion until someone names the loan program and the refinance type. Lendmire’s cash-out refinance programs page lays out the conventional cash-out lane. On a primary residence that lane is typically written to 80% LTV on a one-unit home and 75% on a 2–4 unit home. All figures are subject to lender guidelines and full file review.
How the Loan Is Underwritten, Step by Step
Underwriters generally follow a sequence like the one below when a file includes partial rental income.
1. Classify the property and the loan. Is it a 2–4 unit with you living in one unit, or a one-unit with an ADU? Is the refinance limited cash-out or full cash-out? These two answers decide whether projected rent is even eligible.
2. Look for rent history. If the unit has been rented and the rent shows on your most recent tax return, the lender analyzes the cash flow from that return. If not, the lender falls back on a lease or the appraiser’s market rent, and lease use is limited to specific exceptions.
3. Order the right appraisal. A 2–4 unit uses the small residential income property report, Form 1025. A one-unit with an ADU uses the standard appraisal plus the comparable rent schedule, Form 1007. The appraiser can note that the rent belongs to the ADU specifically. Fannie Mae’s ADU income job aid shows where that form fits.
4. Support the lease. A lease alone is not enough. The lender typically needs the rent schedule to back it up, or proof the lease is in effect, such as evidence the first rent payment was received.
5. Apply the haircut. Only part of the gross rent is counted, because the lender allows for vacancy and upkeep. On an owner-occupied 2–4 unit, your full housing payment stays in the debt side of the ratio and the counted rent is added to income. The rent does not offset the payment. Fannie Mae’s rental income section spells this out, and the lender also reports each unit’s rent in the delivery data even when no rent is used to qualify.
6. Apply the caps. ADU income is limited to a share of total qualifying income, and only one existing ADU counts.
7. Run automated underwriting. The system returns a finding. On the wholesale conventional programs Lendmire works with, the automated finding is the main test, with a total ratio ceiling of 50% and decision scores starting at 620 (640 on an adjustable rate under manual underwriting). Manually underwritten loans run tighter ratios of 36% or 45%, depending on reserves and score.
The step that trips people up is step 5. Counted rent raises income, but the bigger payment from taking cash out also raises debt. On some files the larger loan cancels the benefit of the rent.
Which Setup Gets Which Treatment
| Your setup | Limited cash-out | Full cash-out | Proof usually needed |
|---|---|---|---|
| 2–4 unit, you live in one unit | Other units’ rent can count | Other units’ rent can count | Rent schedule (Form 1025), leases |
| One-unit with a legal ADU | ADU rent can count | ADU rent generally excluded | Rent schedule (Form 1007), lease |
| Room rented inside your home | Boarder income has narrow rules | Boarder income has narrow rules | Documented history |
| No tenant in place | Market rent only in limited cases | Rarely usable | Appraiser’s market rent |
Freddie Mac words its ADU rules differently and its tables do not clearly address cash-out refinances. Confirm the ADU treatment on any cash-out loan with the loan officer before you plan around it.
Where the Rule Breaks
Full versus limited cash-out. If you take out cash for a remodel or to pay off other debt, the loan is a full cash-out. A limited cash-out pays off only the first mortgage, closing costs and a purchase-money second. The line between the two matters a great deal when an ADU is involved.
Boarders versus ADU tenants. HUD’s Mortgagee Letter 2023-17 says a renter of an ADU is not a boarder. Where income can be counted, the two are documented differently, so do not call the tenant in your garage apartment a roommate.
Living in the ADU. If you live in the ADU and rent out the main house, the main dwelling’s rent cannot be used for qualifying. The property can still count as your primary residence.
Second homes. Rent on a second home cannot qualify you. Occupancy sets leverage, and a cash-out on a second home is written at 75%, below the 80% for a one-unit primary residence.
Live-in aide. Ask your loan officer whether any special treatment applies if a live-in aide shares your one-unit primary residence, because the rules differ by agency and this article does not spell them out.
Unpermitted units. An unpermitted or unlicensed unit is a problem on its own. An appraiser may decline to value it as a legal unit, and the lender may not count the rent at all. Get the permit status in writing before you apply.
Seasoning. On a conventional cash-out, the first mortgage being paid off must be at least 12 months old, measured note date to note date, per Fannie Mae’s cash-out eligibility rules. A borrower must also have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
Texas homesteads. A cash-out on a Texas homestead under Section 50(a)(6) is capped at 80% of the home’s value by the state constitution. The 89.99% no-mortgage-insurance lane described below is not written there.
A Worked Example: With Rent and Without
This example is illustrative and uses no dollar amounts.
Picture a homeowner with a duplex, living in one side, who wants cash out for a roof and kitchen. Without counting the other unit’s rent, the total ratio lands just above the 50% ceiling. With the other unit’s rent counted at its reduced share and added to income, the ratio drops under 50%. The file works, but only because the rent was documented with a rent schedule and a lease.
Change one fact. The same borrower owns a one-unit home with a basement ADU, and the loan is a full cash-out. The ADU rent is excluded, the ratio stays above the ceiling, and the file needs a different structure. Options are a smaller cash-out amount, a limited cash-out, or paying down other debt first.
If Rent Doesn’t Count
- Shrink the cash-out. A smaller loan means a smaller payment and a lower ratio.
- Switch to a limited cash-out. On a one-unit primary residence, the rate-and-term lane can reach the high end of the conventional range, with the exact ceiling depending on the program and the borrower. The new loan pays off the first mortgage, closing costs and a purchase-money second. Incidental cash back is capped at the lesser of 2% of the new loan or $2,000 at Fannie Mae, and at the greater of 1% of the new loan or $2,000 at Freddie Mac. Mortgage insurance applies at higher leverage, except in the no-MI cash-out lane below.
- Look at the wholesale no-MI cash-out lane. It reaches 89.99% LTV with no mortgage insurance, at a 680 score and a 50% ratio, on a thirty-year fixed, primary residence, conforming balance. It carries its own six months of seasoning.
- Use a government streamline when the numbers fit. The FHA Streamline (existing FHA loan, no appraisal, limited credit review, net tangible benefit) and the VA IRRRL (existing VA loan, no VA appraisal, net tangible benefit, seasoning of the later of 210 days and six payments) refinance the existing loan. They are not cash-out products and are not built to count projected rent.
- Pay down other debt first. Lower monthly obligations reduce the ratio without any rent in the file. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Documents to Gather Before You Apply
- Leases for each rented unit, signed by both sides.
- Proof of rent received, such as bank deposits or payment records.
- The tax return pages that show rent, if the unit has been rented. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
- Permit or certificate paperwork showing the unit is legal.
- A floor plan or layout showing the unit has its own entrance, kitchen and bath.
- Statements for the current mortgage and any second lien.
Common Mistakes
- Assuming all projected rent counts. The rules cover specific property types and transactions only.
- Assuming the full rent counts. Lenders count a reduced share.
- Expecting rent to cancel the payment. On an owner-occupied 2–4 unit, the whole payment stays in the ratio.
- Listing your own unit’s rent. It does not count.
- Switching loan types late. Changing a limited cash-out into a full cash-out by paying off a non-purchase second can erase ADU income.
- Skipping the permit check. An unpermitted unit can sink both the appraisal and the rent.
Frequently Asked Questions
Can I refinance if there is no tenant in the unit yet?
Often yes, but the rent may not help you qualify. Without a lease or rent history, the lender relies on the appraiser’s market rent where the program allows it, and many full cash-out files get no rent credit at all. Plan to qualify without it.
Does boarder or roommate income count?
Only under narrow rules, and it usually needs a documented history of receiving the rent. A tenant in a separate ADU is treated differently from a boarder, so describe the arrangement accurately to the loan officer.
Are cash-out proceeds counted as income?
No. Cash from the refinance is borrowed money, not income, and it does not help you qualify. It increases the loan balance and the payment, which can raise your ratio.
Does short-term rental income count?
Rarely for a home you live in. Lenders generally want a lease or documented rent history, and short-term income is harder to document. Ask your loan officer before counting on it.
What if my unit is not permitted?
Expect trouble. The appraiser may not value it as a legal unit, and the lender may exclude its rent. Resolve the permit question before you apply, or plan to qualify as though the unit were not there.
Weighing It
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Lendmire is a mortgage broker arranging consumer loans through wholesale lenders in 16 states, and every program figure above is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B3-3.8-02, Rental Income from the Subject Property
2. Fannie Mae ADU income job aid
3. Fannie Mae Selling Guide B3-3.8-01, Rental Income
4. HUD Mortgagee Letter 2023-17
5. Fannie Mae, cash-out refinance eligibility updates
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance Requirements for How Much Home Equity You Can Borrow · How a Cash-Out Refinance Works When a Trust Owns the Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.