Effectively immediately, Fannie Mae is allowing rental income from accessory dwelling units (ADUs) to be considered as part of a borrower’s qualifying income.
However, the government-sponsored enterprise (GSE) also set down several requirements that borrowers must meet.
For one thing, using ADU rental income is limited to purchase money mortgages and limited cash-out refinances. For another, the amount of rental income used for qualifying purposes from the ADU is limited to 30% of the borrower's total qualifying income.
Also, the property on which the loan is being made must be a one-unit, principal residence. And rental income may only be derived from one ADU, even if multiple ADUs exist.
Lenders may implement these changes immediately for loans that are eligible for manual underwriting, Fannie Mae said. All other Selling Guide requirements for documentation of rental income still apply.
An ADU is a smaller, additional living space on the same lot as a single-family home. It must include space for living, sleeping, cooking, and bathrooms independent of the primary residence. While the ADU may or may not include access to the primary residence, it must be accessible without going through the primary residence, and there must be some expectation of privacy from the home.
ADUs can be:
- Within a primary residence, such as a basement apartment.
- Attached to a primary residence, such as a living area over a garage.
- Detached from the home entirely; It could even be a manufactured home.
Note that ADUs are not eligible with a two- to four-unit dwelling, or when a manufactured home is the primary residence. Properties with multiple ADUs are ineligible for Fannie Mae financing.
