Fannie Mae Form 71B is the legacy name for the Operating Income Statement that accompanies the Small Residential Income Property Appraisal Report, now officially numbered Form 1025. A licensed appraiser completes this form when evaluating a two-to-four unit residential property, and the operating income section breaks down the property’s rental revenue and expenses so the lender can determine how much income the property actually generates. If your lender or an older document pointed you to “Form 71B,” you’re looking at the operating income portion of Form 1025, which is available on Fannie Mae’s forms page.
Who Actually Fills It Out
The appraiser completes Form 1025 and its operating income statement. You don’t. You order and pay for the appraisal through your lender, and the appraiser inspects the property, researches comparable rents, and populates the income and expense fields based on market data and any documentation you or the seller provide.
Still, the numbers the appraiser enters directly affect how much rental income your lender credits toward qualifying you for the loan. If the appraiser underestimates rents or overestimates expenses, you lose qualifying income. Knowing how the form works helps you catch problems before they cost you an approval.
Documents to Have Ready for Your Lender
Even though you don’t fill out the form, your lender will ask for records that support the appraiser’s conclusions. Pulling these together early prevents delays in underwriting.
- Current, fully executed leases for every occupied unit. Fannie Mae requires that lease amounts be supported by the appraiser’s market rent analysis on Form 1025. If you’re using lease income to qualify and there’s no tax return history of renting the property, the lender will want either two months of consecutive bank statements showing rent deposits, or copies of the security deposit and first month’s rent with proof of deposit.
- Your most recent signed federal tax return, including Schedules 1 and E. Schedule E reports rental income and expenses for each property you own. If Schedule E shows fewer than 365 Fair Rental Days, you may need a current lease to supplement it, or two years of returns showing the property was in service.
- Twelve months of utility bills (electricity, gas, water, sewer, trash) for any utilities you pay on behalf of tenants.
- Your current property insurance declarations page showing premium, coverage, and address.
- The most recent annual property tax statement from your county assessor.
- Any property management agreement showing the fee structure.
If you have no rental history on your tax returns, Fannie Mae’s Selling Guide limits how rental income can be used for qualification. With no current housing payment and no property management experience documented on Schedule E, you cannot use rental income to qualify at all. If you have management experience but no current housing payment, the rental income used for qualifying cannot exceed the total mortgage payment (principal, interest, taxes, insurance, and association dues).1Fannie Mae. Rental Income
What the Operating Income Statement Contains
The operating income section follows a top-down structure. The appraiser starts with the property’s total potential income and works downward through deductions to arrive at net operating income.
Gross Rent Schedule
The appraiser enters the monthly rent for each unit based on active leases or, for vacant and owner-occupied units, the estimated market rent drawn from comparable rentals nearby. This section also captures other income the property generates, such as laundry or parking fees. All unit rents added together, multiplied by twelve, produce the Gross Annual Rental Income.
Vacancy and Collection Loss
The appraiser applies a percentage deduction for anticipated vacancy and uncollected rent based on local market conditions. This figure reflects the appraiser’s professional judgment about the neighborhood’s rental market.
This vacancy deduction on the appraisal is separate from the 25% factor Fannie Mae applies during qualification (explained below). The appraisal captures what the appraiser believes the property will actually experience; the 25% factor is a standardized underwriting adjustment the lender applies regardless of actual conditions.
Operating Expenses
The form breaks expenses into individual line items: fuel, utilities, water and sewer, trash removal, pest control, insurance, property taxes, management fees, landscaping, and general maintenance. The appraiser estimates these based on market norms for comparable properties rather than simply accepting the owner’s reported costs. Each figure is an annual total.
Replacement Reserves
One line that often confuses borrowers is “Replacement Reserves.” This represents the annual amount set aside for major capital items that wear out over time, such as a roof, furnace, or water heater. The appraiser estimates this by considering the remaining useful life of major building components. A roof with ten years of life left and an estimated replacement cost of $15,000, for example, contributes roughly $1,500 per year to this line.
Net Operating Income
After subtracting total operating expenses (including replacement reserves) from the vacancy-adjusted gross income, the form arrives at Net Operating Income. Dividing by twelve produces the monthly figure. This number drives the lender’s analysis of whether the property’s income supports the loan.
How the Numbers Translate Into Qualifying Income
The operating income statement tells the appraiser’s story of the property’s finances. Fannie Mae applies its own standardized formula when deciding how much of that income actually counts toward qualifying you.
When the lender uses lease agreements or the market rents on Form 1025, it multiplies the gross monthly rent by 75%. The remaining 25% is assumed lost to vacancy and ongoing maintenance, regardless of whether the property is fully occupied with long-term tenants. This blanket adjustment applies to every property.1Fannie Mae. Rental Income
How the lender treats the resulting income depends on whether you plan to live in the property:
- For an owner-occupied principal residence, the monthly qualifying rental income (75% of gross rents) gets added to your total monthly income. The full mortgage payment, including principal, interest, taxes, insurance, and any association dues, counts as a monthly obligation in your debt-to-income ratio. The income and the payment are handled separately rather than netted against each other.1Fannie Mae. Rental Income
- For an investment property, the lender subtracts the full mortgage payment from the qualifying rental income. If the result is positive, it adds to your income. If negative, the net loss counts as a monthly debt obligation. Because the mortgage payment is already factored into this calculation, it doesn’t get counted again separately.1Fannie Mae. Rental Income
When Schedule E is used instead of lease agreements, the lender adds back depreciation, mortgage interest, taxes, insurance, and HOA dues to the reported income before calculating net rental income. Non-recurring expenses can also be added back with proper documentation.1Fannie Mae. Rental Income
Down Payment and Reserve Requirements
For an owner-occupied principal residence in a two-to-four unit property financed through Desktop Underwriter, the maximum LTV is 95% on a purchase or limited cash-out refinance, so you can put as little as 5% down. Cash-out refinances on owner-occupied multi-unit properties cap at 75% LTV. Investment properties require at least 25% down for purchases and limited cash-out refinances, with cash-out refinances capped at 70% LTV.2Fannie Mae. Eligibility Matrix
Fannie Mae also requires six months of reserves for two-to-four unit principal residence transactions and investment property transactions. Reserves are liquid assets you’d still have after closing, enough to cover six months of the full mortgage payment including taxes and insurance.3Fannie Mae. Minimum Reserve Requirements
After the Appraisal Is Submitted
Once the appraiser delivers the completed Form 1025 to your lender, the underwriting team reviews the numbers against your loan file. The underwriter checks whether the appraiser’s market rents align with the leases you provided, whether the expense estimates look reasonable for the area, and whether the resulting income supports your qualification under the 75% formula.
Underwriters often issue conditions asking for additional documentation. Common requests include bank statements proving rent deposits, cancelled checks for specific expense payments, or clarification on discrepancies between Schedule E figures and the appraiser’s estimates. Responding quickly keeps the file moving.
If the appraisal comes back with lower market rents than your actual leases show, ask your lender whether a reconsideration of value is appropriate, supported by comparable rental data. The appraiser may revise the figures if the evidence warrants it. If the operating income statement shows the property cannot support the proposed loan amount after the 25% vacancy and expense deduction, your options include increasing the down payment, paying down other debts to improve your debt-to-income ratio, or choosing a less expensive property.