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Lenders will now be able to count income from accessory dwelling units (ADUs) when underwriting a mortgage. The new policy from the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA) allows the inclusion of rental income from the ADU in a borrower’s qualifying income.

The FHA defines an ADU as “a single habitable living unit with a means of separate ingress and egress that meets the minimum requirements for a living unit.”

HUD says the new allowance will enable more borrowers to qualify for FHA financing for properties with ADUs. Additionally, the department says the policy will allow first-time home buyers, seniors, and intergenerational families to leverage ADUs to enhance the generational wealth building potential of homeownership.

“The new policies provide greater flexibility for the use of rental income from ADUs, which will help more borrowers qualify for FHA-insured financing on homes with ADUs,” says Sarah Edelman, HUD deputy assistant secretary for single-family housing. “We’re pleased that we’ve had such widespread support from the housing industry—support that has helped us deliver this meaningful solution for the nation’s home buyers.”

The new policy is one effort to support the Biden-Harris Administration's focus on addressing affordable housing challenges and increase access to homeownership. HUD Secretary Marcia Fudge says making it easier to finance an ADU will go a long way to helping increase the supply of affordable housing.

“This is a part of our work to help address the critical shortage of affordable housing in communities across the country and help people increase the value of their homes,” says Fudge.

The new policies:

  • Allow 75% of the estimated ADU rental income for borrowers to qualify for an FHA-insured mortgage and a property with an existing ADU;
  • Use 50% of estimated rental income, for some borrowers, from a new ADU the borrower plans to attach to an existing structure;
  • Include ADU-specific appraisal requirements for appraisers to clearly identify, analyze, and report on ADU characteristics and the estimated rent the ADU can be expected to generate; and
  • Add ADUs to the types of improvements that can be financed under FHA’s mortgages for new construction.