Feds make it easier for home buyers to buy houses with accessory dwelling units

PHILADELPHIA — A new federal housing policy will make it easier for some home buyers to qualify for a mortgage by allowing them to include rental income from accessory dwelling units as part of their application.

The Federal Housing Administration announced Monday that under a new policy, it will allow lenders to count income from accessory dwelling units when underwriting a mortgage. The rental income from the ADU will be included in the borrower’s qualifying income. 

The change in policy will “allow more borrowers to qualify for FHA financing for properties with ADUs,” the FHA said in a press release. 

“This not only helps more people qualify for a mortgage and build wealth, it also helps to boost the supply in neighborhoods where housing is least available,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said during the Mortgage Bankers’ Association’s annual press conference on Monday.

An ADU is generally thought of as a smaller housing unit on the same lot where the main house is located, such as a granny flat. ADUs can be rented out to short- or long-term tenants, which can provide a source of income similar to if an owner of a multi-family unit lives in one unit and rents out the others to pay for the mortgage. 

For homeowners looking to add an ADU, 50% of the estimated rental income from the unit will be used to qualify for a mortgage under the FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program. “This will enable more homeowners with limited incomes to build ADUs, helping them sustain homeownership and expanding the production of ADUs as rental housing,” the FHA said.

For homeowners who would like to buy a property with an existing ADU, the new FHA policy allows 75% of the estimated ADU rental income to count toward their ability to qualify for an FHA-insured mortgage.

The FHA also said that it would include ADU-specific appraisal requirements, so that appraisers can capture estimated rents that the unit can generate. 

“FHA-approved lenders may begin offering borrowers mortgages on properties with ADUs under the new policies effective immediately,” the agency said.

Mark Fleming, chief economist at First American, said that the FHA’s decision to include rental income from an ADU is similar to what borrowers face when taking on a mortgage for a multi-family unit. “Why would an accessory dwelling unit be in a way treated any differently? It’s a source of income to that homeowner,” he said.

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