October 16, 2023

HUD: FHA Expands Access to Mortgage Financing for Homes that Have or Will Include Accessory Dwelling Units

New Accessory Dwelling Unit policy provides expanded financing options for borrowers and reinforces Biden-Harris Administration housing supply and homeownership goals

The U.S. Department of Housing and Urban Development, through the Federal Housing Administration (FHA), today announced a new policy which allows lenders to count income from small units of housing built inside, attached to, or on the same property as a primary residence (Accessory Dwelling Units (ADU)) 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. ADUs can be rented out to tenants, thereby adding to the supply of housing in a community. In addition, this new policy will enable more first-time homebuyers, seniors, and inter-generational families to leverage the power of ADUs to enhance the generational wealth building potential of homeownership. Today’s announcement supports the Biden-Harris Administration’s Housing Supply Action Plan and reinforces the importance the Administration places on addressing the nation’s affordable housing challenges and increase access to homeownership. See a fact sheet released today, from the White House, announcing new actions on homeownership

“Increasing the supply of affordable housing and helping families to create generational wealth is what today’s action making it easier to finance an accessory dwelling unit is all about. 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,” said HUD Secretary Marcia L. Fudge. “The Biden- Harris Administration is committed to increasing the housing supply so that more people have access to quality housing that they can afford so that their families can thrive.”

“With our new ADU policy, we’ll help households of more modest means maximize the potential benefits of homeownership to build wealth,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “This new policy also contributes to the supply of affordable housing in many neighborhoods where it’s most needed and least available.”

“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,” said Deputy Assistant Secretary for Single Family Housing Sarah Edelman. “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 homebuyers.”

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. An ADU is a private space that is subordinate in size and can be added to, created within, or detached from a primary one-unit single-family dwelling.

The new policies:

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

This post was originally published here.