FHA proposes allowing ADU rental income to qualify for FHA-insured mortgage financing.

[Cheryl Cort]

This would be a breakthrough for ADU financing b/c the projected income from the ADU rental could now help an owner qualify for a larger loan. Comments are due Ap. 27. 

I'll work on some talking points. 

HUD No. 23-075 HUD Public Affairs (202) 708-0685

FOR RELEASE Thursday April 13, 2023

FEDERAL HOUSING ADMINISTRATION SEEKS FEEDBACK ON PROPOSED CHANGES TO INCREASE ACCESS TO AFFORDABLE FINANCING FOR PROPERTIES WITH ACCESSORY DWELLING UNITS

Proposed policy changes would expand the use of affordable FHA-insured financing for homes with Accessory Dwelling Units as part of Biden-Harris Administration’s Housing Supply Action Plan.

WASHINGTON - Today, the Federal Housing Administration (FHA) published for feedback a draft update to its requirements for insuring mortgages on single family homes with Accessory Dwelling Units (ADUs). The proposal adds additional flexibility in calculating market rent and in using ADU rental income to qualify for FHA-insured mortgage financing. If finalized, these updates would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans. FHA’s action today advances the goals of the Biden-Harris Administration’s Housing Supply Action Plan.

“FHA is at the forefront of the Administration’s efforts to increase housing supply and affordability,” said Federal Housing Commissioner Julia Gordon. “At a time when housing supply is constrained and ADUs are gaining popularity nationwide, an updated policy has the potential to expand opportunities for low- and moderate-income homeowners to benefit from the wealth building potential of ADUs while supporting the affordable housing needs of their communities.”

ADUs are small units of housing built inside, attached to, or on the same property as a primary residence. FHA programs currently allow for the purchase, rehabilitation, or refinance of properties that include ADUs. FHA does not, however, currently allow for the inclusion of rental income from the ADU in the borrower’s qualifying income.

The full set of proposals are contained in a draft Mortgagee Letter posted for public feedback on FHA’s Single Family Housing Drafting Table web page. FHA is accepting feedback on its draft policy through April 27, 2023.

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_____________________________ Cheryl Cort (she/her) Policy Director Coalition for Smarter Growth Mobile: 202-251-7516 (e) che...@smartergrowth.net | www.smartergrowth.net  Twitter @betterDCregion | @cherylcort

[Cheryl Cort]

Hi everyone - time has gotten away from me & today is the deadline for comments for FHA rule to permit ADU rental income to be counted as qualified borrower income & in appraisals. FHA has an elaborate spreadsheet for comments, but that's too complicated for me. I encourage people to send supportive comments. Below are ours. See link to FHA press release here.

FROM: Cheryl Cort, che...@smartergrowth.net

TO: sffee...@hud.gov

Subject: RE: FHA INFO #23-30 comments

RE: FHA INFO #23-30, The Draft ML proposes:

(1) Policy on underwriting rental income from an ADU and for the analysis and reporting of ADU market rent in FHA appraisals.

(2) Policy that adds ADUs to the types of improvements eligible for the FHA Standard 203(k) Renovation Mortgage Insurance Program and for including ADU rental income when performing financial assessments for HECM.

We wish to express our support for permitting ADU rental income to count as qualified income for a borrower, in appraisals, and related valuations of accessory dwellings that reflect their market rental value to the owner and property.

Thank you.

Cheryl Cort

Policy Director

Coalition for Smarter Growth

PO Box 73282

Washington DC 20056

_____________________________ Cheryl Cort (she/her) Policy Director Coalition for Smarter Growth Mobile: 202-251-7516 (e) che...@smartergrowth.net | www.smartergrowth.net  Twitter @betterDCregion | @cherylcort