An accessory dwelling unit (ADU) is an extra living space on your property that can add value to your home and provide a guesthouse for family members or other people who visit. They can also be used to create additional rental income from your primary residence.
Examples of an ADU include a garage or shed converted into a tiny house, or a basement apartment, sometimes called a granny flat. There are other types of housing options, such as a guest house, that can be classified as an ADU. An ADU costs approximately $150 to $300 per square foot to build on average. Most ADU’s are between 600 and 1,200 square feet.
HUD recently announced a new policy that allows lenders to count income from ADUs, when underwriting a mortgage. This change allows for the inclusion of rental income from the ADU in the borrower’s qualifying income and would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) Rehabilitation mortgages.
The New Policy
1. Use 50% of the estimated rental income, from a new ADU the borrower plans to attach to an existing structure, such as in a garage or basement conversion, to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program. This will enable more home owners with limited incomes to build ADUs, helping them sustain homeownership.
2. Allow 75% of the estimated ADU rental income for borrowers to qualify for an FHA-insured mortgage on a property with an existing ADU. This additional income flexibility will help to increase access to homes with ADUs for home buyers with limited incomes.
I have been a huge proponent of ADU’s for years. I have helped multiple homebuyers purchase these types of properties based on my recommendations. I think this will be an enormous opportunity for mini buyers who do not currently qualify. You will want to work with someone who knows how to navigate these types of transactions.
Luckily, you know me! Reach out to me today to get started or click the “Apply Now”
Real Estate Agents,
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