NATIONWIDE – The Federal Housing Administration (FHA) announced, Monday, a Policy change that now allows the projected income from an existing or new Accessory Dwelling Unit (ADU) help home buyers qualify for a Mortgage.
The FHA says the policy change will assist homebuyers with limited income gain access to a property with an ADU and expand the production of ADUs as rental housing.
Existing or New ADU rental income
The FHA news release says income from an ADU that is built inside, attached to, or on the same property as a primary residence can be used to help homebuyers qualify for the home purchase. In addition, the projected income from a new ADU can also be used to qualify.
For properties with an existing ADU the policy change allows 75% of the estimated rental income for borrowers to qualify for an FHA-insured mortgage.
For a new ADU, 50% of the estimated rental income, for borrowers with plans to attach to an existing structure, such as in a garage or basement conversion, can be used to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program.
RELATED: California takes back $50 million for ADU program – transfers $20 million to down payment program
Additional changes
In addition to the rental income policy, the FHA also made changes to include ADU-specific appraisal requirements for appraisers.
ADUs are also being added to the types of improvements that can be financed under FHA’s mortgages for new construction. This allows new homes to be built with ADUs from the ground up.
The FHA says new construction change will be an important source of ADU production in addition to rehabilitating existing structures.
California ADU grant program
California lawmakers recently announced they may add $25 million into the ADU grant program in the state’s efforts to boost ADU construction for affordable housing. Funding for the program – a $40,000 grant to cover pre-construction costs, was depleted earlier this year in March.
For more information about the FHA policy changes visit https://www.hud.gov/press/press_releases_media_advisories/HUD_No_23_237
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