Fannie Mae’s New ADU Income Rules Explained

Understanding Fannie Mae’s New Update on Accessory Dwelling Units (ADUs)

Fannie Mae has recently made an important update that could benefit many borrowers looking to enhance their qualifying income. Effective immediately, rental income generated from Accessory Dwelling Units (ADUs) can now be included in a borrower’s qualifying income for purchase money mortgages and limited cash-out refinances.

What is an ADU?

An Accessory Dwelling Unit (ADU) is a secondary housing unit located on the same property as a primary residence. These units are designed to provide independent living spaces, complete with sleeping, cooking, and bathroom facilities. ADUs can be interior, attached, detached, or even manufactured homes, but they cannot serve as the primary residence if the main home is a manufactured home.

Key Updates to Note:

Income Inclusion: Borrowers can now count rental income from one ADU toward their qualifying income.

Limitations: The rental income from the ADU is capped at 30% of the borrower’s total qualifying income.

Eligibility: This update applies only to one-unit principal residences. Properties with multiple ADUs or those with two to four units are not eligible.

Underwriting: Manual underwriting can implement this new rule immediately, while standard rental documentation requirements will still apply.

This change opens up new opportunities for homeowners with ADUs to leverage their rental income, making it easier to qualify for loans. If you have an ADU or are considering adding one, this update could be a significant advantage in your borrowing journey.

Ready to explore how the new ADU income rules can benefit you? We’re here to help you navigate your borrowing options and make the most of your investment.