The Federal Housing Administration announced they are considering a rule change to give more flexibility for mortgage seekers with an ADU.
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.
Long time readers will remember that 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.
This move by FHA follows several legislative sessions of ADUs bills being considered by the Maryland General Assembly as well as a host of county-level actions strengthening the use of ADUs. This year alone, Baltimore County and Anne Arundel County have put forward plans to strengthen the use of ADUs in their jurisdictions. During this past session the General Assembly passed HB239/SB382, which creates a task force to explore best practices and recommendations for the development of ADUs. It is also important to note that ADUs are authorized in some form or fashion is all of Maryland’s 24 jurisdictions.
