The Quick Read: Lenders count only part of the rent on your leases, and only from units you don’t live in. The usual agency method takes 75% of the supported rent figure. “Supported” generally means the lower of what your lease says and what the appraiser says the unit would rent for. That counted rent then offsets the housing payment on your new, larger loan. Program details vary and are subject to lender guidelines and full file review.
Key Takeaways
- Only rent from units you don’t occupy counts. Rent from your own unit generally doesn’t.
- The haircut is typically 75% of the supported rent. It is a lender convention, not a forecast of your real cash flow.
- The appraiser’s market rent can cap what your lease shows.
- Your new payment still counts in full. Counted rent helps your ratios but doesn’t erase the payment.
- Cash-out leverage is 80% LTV on a one-unit principal residence and 75% on two- to four-unit properties.
This applies when you own a two- to four-unit building, live in one unit, and want cash from the equity. Lendmire’s cash-out refinance programs page covers the loan itself. This article covers one narrow piece of it: the rent.
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.
Which Rent Figure Does the Lender Actually Use?
The lender uses the lower of two supported numbers: the rent on your signed lease or the market rent the appraiser reports. If the lease is below market, the lease usually wins. If the lease is above market, the appraisal usually caps it.
Fannie Mae’s Selling Guide spells this out. When current market rents don’t reasonably support the lease rent, the lender must either document why the income is stable or use the lesser amount. HUD’s rule for FHA is blunter. Mortgagee Letter 2023-17 uses 75% of the lesser of the appraiser’s fair market rent or the lease rent when you have no rental history on the property since your last tax filing.
For a two- to four-unit building, the appraiser completes a small income property report. It includes a market rent opinion for each unit. Fannie Mae and Freddie Mac each have their own version of this report, but the job is the same.
What about tax returns? If you’ve owned the building and reported rent on your returns, some programs can use that history instead. If your leases are new, rent hasn’t hit a return yet, so the lease and the appraisal carry the file.
How Does the 75% Haircut Work?
The lender multiplies the supported monthly rent by 75%. The other 25% stands in for vacancy and upkeep. Fannie Mae’s guide applies the 75% factor to the subject property’s gross rent, and FHA and VA use the same factor.
Run an index example instead of dollars. Say a unit’s lease shows rent of 100. The appraiser’s market rent says 90. The lender works from the lower number, 90. Then it takes 75%, so the counted rent is 67.5.
Flip it. If the lease says 90 and the appraiser says 100, the lease wins. The counted rent is again 67.5, because the lower figure is 90. Same answer, different reason.
One more case. The lease and the appraisal both say 100. Counted rent is 75. That is the cleanest file, and the one lenders like best.
Your actual cash flow is better than the lender’s math, unless a unit sits empty or a repair bill lands. The 75% is how lenders look at the file. It isn’t a promise about your building.
One caution. For a cash-out on your occupied two- to four-unit home, the rent from other units is counted as income against your housing payment. Freddie Mac sets its own separate rules for subject-property rent, so the exact calculation can differ by agency and program. A broker checks the current guide text for your file.
Which Rent Counts in Each Lease Situation?
Here is how the usual lease situations tend to be treated. Treat this as a map, not a rulebook. Each lender and program adds its own overlays.
| Situation | What a lender typically does |
|---|---|
| Current lease, rent matches market | Counts 75% of the rent |
| Lease below market | Works from the lower lease figure |
| Lease above market | Caps at market rent, or asks for support |
| Expired or month-to-month | Often needs proof rent is being received |
| Unit vacant | Usually counts nothing for that unit |
| Rent raised just before applying | Needs proof the new rent is actually paid |
| Rent paid in cash or by app | Needs a documented trail |
| Tenant behind on rent | Raises questions; expect an explanation letter |
Why the extra proof? Fannie Mae asks for evidence the lease has started, such as two consecutive months of bank statements or electronic rent transfers that match the lease. A lease is a promise. Deposits are proof.
That’s why cash payments are a problem. A landlord who takes rent in an envelope may have a perfectly good tenant and no paper trail. Move rent payments into a bank account or payment app before you apply, so the statements can match the lease.
How Does the Underwriting Sequence Run?
1. Occupancy and property type. The lender confirms you live in one unit and the building has two to four units. Rent only counts from the other units.
2. Leases and proof. You provide leases for each rented unit and bank records showing rent arriving.
3. Appraisal with rent schedule. The appraiser opines on market rent for each unit.
4. Rent selection and haircut. The lender picks the supported figure for each unit, then applies 75%.
5. Housing payment. The lender counts the full payment on the new loan: principal, interest, taxes, insurance, and any association dues.
6. Ratios and credit. The counted rent offsets the payment in your debt-to-income calculation. Across the wholesale conventional programs Lendmire works with, scores start at 620 and the automated finding sets the ratio limit, with a total ratio ceiling of 50%.
7. Leverage and seasoning. The lender checks the cap on cash out, plus how long you’ve owned the building and held the current loan.
Step 5 surprises people. The rent doesn’t replace your payment. It reduces the strain the payment puts on your ratio.
What Happens to the Rent From the Unit You Live In?
It generally doesn’t count. The unit you occupy is your home, not income. Fannie Mae’s guide treats rent from the borrower’s own unit as unusable for qualifying, apart from narrow exceptions such as boarder income or certain accessory-unit income. Those exceptions carry caps and extra conditions that vary by program.
For a fourplex, build a simple rent roll with one line per unit:
- Unit you live in: counted rent is zero.
- Each rented unit: lower of lease and market rent, times 75%.
- Each vacant unit: zero.
- Add the counted lines together. That total is your counted rent.
Room-by-room leases work the same way. Add up the supported rent across the rooms you rent out, then apply the haircut once to the total, subject to how the lender documents it.
Where Does the General Rule Bend?
A few edge cases change the answer.
Accessory units on a one-unit home. A basement apartment or garage unit is not a second legal unit in the lender’s eyes by default. Treatment varies by program. FHA bars accessory-unit rent from income on a cash-out, which HUD’s 2023-17 letter addresses. Fannie Mae has separate flexibility for accessory-unit income, but it carries a cap and an experience requirement, and it is aimed at specific programs. A broker confirms whether it applies to a cash-out.
VA cash-out. The VA counts 75% of the lease or rental amount as effective income. The VA Lenders Handbook also expects reserves when rent that hasn’t been earned yet is used to qualify, stated as six months of the payment. Cash you pull out of the VA cash-out cannot count as those reserves. Lendmire’s piece How a VA Cash-Out Lender Counts Rent From the Other Duplex Unit walks through that case.
Expired lease. A lease that rolled to month-to-month isn’t dead, but lenders want proof rent keeps arriving. Recent statements do that job.
Above-market lease. A tenant who agreed to a high rent doesn’t raise your counted rent past market. The appraisal caps it.
Tenant arrears. A tenant on a repayment plan makes the proof harder. Expect questions and a written explanation.
Moving out. Occupancy sets leverage. A cash-out is written on a primary residence, a second home, or an investment property, and the cap changes with the occupancy. If you plan to move out and lease every unit, tell your broker before you apply, because the program changes.
Do Streamlines and Rate-and-Term Refinances Look at Rent?
Mostly no. A refinance replaces your existing loan without pulling out meaningful cash, so rent usually isn’t the deciding factor. The FHA Streamline on an existing FHA loan has no appraisal and a limited credit review. The VA IRRRL on an existing VA loan has no VA appraisal. Both focus on whether the refinance gives you a net tangible benefit. Lender overlays vary, so documentation can differ.
Cash-out is different. You’re asking for more loan against the building, so the lender looks harder at the income that supports it.
How Does the Bigger Payment Change the Math?
A cash-out raises your balance, so the new housing payment is bigger than the old one. Counted rent is fixed by the leases and appraisal. Your ratios therefore tighten as you pull more cash.
Leverage caps this directly. Across the wholesale conventional programs, a cash-out on a one-unit principal residence reaches 80% LTV. On a two- to four-unit property it reaches 75%. The lender’s current guidelines set the exact limit, and they’re subject to full file review.
Seasoning matters too. The first mortgage being paid off generally must be at least 12 months old, and you must have been on title for at least 6 months. Delayed financing, inheritance, and legal-award exceptions exist.
One wholesale lane goes past the 80% cap, reaching 89.99% LTV with no mortgage insurance. It applies only to a thirty-year fixed on a primary residence at a conforming balance, with a 680 score, a 50% ratio, and its own six months of seasoning. Rental income doesn’t change that lane’s other limits. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Passing the lender’s test also doesn’t mean the building cash flows. The haircut and the ratio test measure qualification. Your own vacancy, repairs, and reserves decide whether the numbers work in real life.
Key Terms Defined
Lease rent. The monthly rent written in your signed lease.
Market rent. What the appraiser says a unit would rent for today, based on comparable rentals.
Counted rent. The rent a lender credits to your file after choosing the supported figure and applying the 75% haircut.
Debt-to-income ratio. Your monthly debts, including the new housing payment, divided by your monthly income.
Seasoning. The waiting period a lender requires before you can refinance or pull cash from a loan or property.
What Should You Gather Before You Apply?
Prep saves you from late surprises. Pull together:
- A signed lease for each rented unit, or proof of the current month-to-month terms.
- Two or more months of bank statements or transfer records showing rent received.
- Any deposit records and a rent ledger for units with recent turnover.
- A short written explanation for a vacancy, an arrear, or a recent rent increase.
- A list of what each unit rents for now, so you can compare it to the appraiser’s number.
Then decide how much cash you actually need. Because leverage is capped and the new payment counts in full, a smaller cash-out may fit your ratios better than the maximum.
What Rules Sit Behind the Lender’s Rent Math?
The rent factor comes from agency guidelines, not federal law. Federal ability-to-repay rules under Regulation Z require a lender to make a good-faith determination that you can repay and to verify the income it relies on with reliable records. They don’t set the 75% figure. That comes from the agencies and insurers.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Does the lender count the rent from the unit I live in?
Generally no. Rent counts from units you don’t occupy. Narrow exceptions exist, such as boarder income or limited accessory-unit income, and each comes with caps and extra conditions. Ask your broker whether your setup fits one.
What if my lease is higher than the appraiser’s market rent?
Expect the lender to use the lower, market figure unless it can document why the higher rent is stable. In FHA’s method, the lender takes 75% of the lesser of the two. A high lease can raise questions, not your counted income.
Can a month-to-month tenant’s rent count?
Often yes, with proof. Lenders want evidence that rent is actually being paid, usually through consecutive bank statements or transfers that match the stated rent. Cash payments without a trail are hard to use.
Does counted rent mean I don’t have to include the payment?
No. The full housing payment on the new loan still goes into your ratios. Counted rent offsets it in the calculation, but it doesn’t remove it.
Does a streamline refinance check my lease rent?
Usually not. The FHA Streamline and VA IRRRL are lighter-documentation products for existing government loans, so rent isn’t the driver. Cash-out is where rent matters.
Next Step
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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. HUD Mortgagee Letter 2023-17
3. Fannie Mae Selling Guide, General Rental Income Information
4. Fannie Mae ADU Income and HomeReady Boarder Flexibilities
5. VA Lenders Handbook, Chapter 4, Credit Underwriting
6. CFPB, Regulation Z 1026.43, Ability to Repay
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Extra Cash a Cash-Out Refinance Adds to Your Loan · How Much Cash a Cash-Out Refinance Leaves After a Family Loan Payoff · How Much Cash Can You Pull Out With a Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.