Fannie Mae’s Three-Year Income Test Starts at Application

The application date can now make a real difference when a borrower’s income has an end date. A file submitted in October and a note signed in December may look like the same transaction, but the three-year continuance check is measured from the application date under Fannie Mae’s current guidance—not from the note date.

That detail is easy to miss when a borrower has a fixed-term benefit, a scheduled distribution, or another limited income source. It is also easy to overapply. The three-year test does not automatically attach to every income line on every file. Here’s how to frame the question early and keep the documentation focused.

First, does this income have an end date?

Fannie Mae’s general rule is that the lender evaluates whether income is reasonably expected to continue, using the nature of the income and its supporting documentation. If the source has no defined expiration date, and the required history for that specific income type is documented, the lender may conclude it is likely to continue unless there is information pointing the other way.

The three-year requirement applies when the income source has a defined expiration date or depends on the depletion of an asset account or other limited benefit. In those cases, the lender must document that the income is expected to continue for at least three years from the application date. Fannie Mae also calls for an ability-to-repay assessment after expiration or depletion—before loan maturity—when that asset account is the sole or majority source of qualifying income.

The distinction matters. A borrower receiving ongoing income with no stated end date should not automatically be told to produce a three-year contract. On the other hand, a statement showing current monthly deposits doesn’t, by itself, establish how long a scheduled distribution is expected to last. The lender’s income-type requirements still apply; the current Fannie Mae continuance guidance is a starting point, not a replacement for the specific section governing that income.

The date is the application date, not the note date

Fannie Mae’s October 7, 2026 Selling Guide update changed the continuance reference point for income with a defined expiration. The Guide now says the lender must document at least three years of expected continuance from the application date. The announcement says the change is effective immediately.

For a simple example, if the lender’s application date is October 20, 2026, the three-year horizon reaches October 20, 2029. A later scheduled closing or note date does not move that starting line. The example is only a date calculation; it doesn’t decide whether the income is eligible or what documentation will satisfy a lender.

That is why the intake date belongs beside the income details in the handoff. When the borrower is applying well ahead of closing, the gap between application and note date can tempt a team to count from the wrong point. Confirm the date the lender is using, especially when the income’s end date is close to the three-year horizon.

Build the check into intake, not the last condition round

You don’t need to make the underwriting decision yourself. You can make the file easier to assess by collecting the facts that reveal which rule may apply:

• Identify the income source and whether its terms specify an end date or depend on drawing down a limited asset.

• Confirm the application date the lender is using, then compare the documented continuance period with the three-year horizon.

• Include the source document that shows the amount, payment schedule, and any termination or depletion terms; ask the lender what additional evidence it needs for that income type.

For an asset-based stream, don’t stop at “there’s enough in the account today.” The lender’s assessment may need to address the account’s depletion and the borrower’s ability to repay after that source ends, if it is the sole or majority qualifying income and depletion would occur before loan maturity. That is a different question from simply verifying the current balance.

An earlier conversation can prevent a late scramble. If the source appears to fall short of the horizon, or the account is doing most of the qualifying work, flag it before setting expectations around the income amount. The lender may need to review another eligible source, additional documentation, or the overall repayment picture. Don’t promise that a different document will cure a shortfall; ask what the lender can consider.

Keep the rule tied to the income type

The general continuance rule sits alongside income-specific instructions. Annuity, pension, retirement, support, trust, and other income sources can have their own acceptable documents and timing details. For example, Fannie Mae’s updated retirement-income section addresses documentation when a borrower starts receiving annuity or pension income after closing but on or before the first mortgage payment date.

There’s another transition worth catching early: if the lender learns that a borrower is moving to a lower pay structure—such as a pending retirement or a new job with lower pay—the Guide directs the lender to use the lower amount for qualifying and determine that it is stable and predictable. A planned change can therefore matter even when today’s paystub looks strong.

The practical habit is simple: separate “what is the income?” from “how long does this particular source last?” Then use the governing income section and the lender’s current instructions to answer each one. Fannie Mae’s October 7 Selling Guide announcement summarizes the clarification; the lender remains responsible for applying the requirements to the loan.

Turn the rule into a cleaner handoff

This is a manageable file-quality check when it happens early: classify the source, anchor the time period to the correct application date, and make the source document easy to find. The same discipline helps with other income questions, where the type of income can matter as much as the dollar amount. EPC’s K-1 income documentation guide is one example of why a focused handoff beats sending a large, unlabeled stack of documents.

If recurring intake bottlenecks are making this harder to manage, EPC’s contract processing services are one option to review. We can discuss where documentation questions tend to surface in your process.

Talk through your income-documentation handoff

If you want a second set of eyes on where income questions enter your file flow, connect with EPC about processing support. We’ll keep the conversation focused on your workflow and the handoffs you want to make clearer.

Educational information only; it is not underwriting, legal, tax, or compliance advice. Lenders and applicable investors determine eligibility and documentation requirements for each loan.