Mortgage financing for homes that have, or will have, accessory dwelling units (ADUs) has been expanded by the Federal Housing Administration (FHA) in an effort to address housing supply issues.

The expansion will allow more borrowers to qualify for FHA financing for properties with ADUs, enabling more first-time homebuyers, seniors, and intergenerational families to achieve homeownership and enhance generational wealth building potential.

“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,” HUD Secretary Marcia Fudge said in a release. “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. 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.”

The change allows lenders to count income from ADUs to be included in the borrower’s qualifying income calculations. FHA-approved lenders can consider 75 percent of the estimated ADU rental income for some borrowers.

The new policy also:

• Uses 50 percent of the estimated rental income, for some borrowers, from a new ADU the borrower plans to attach to an existing structure, such as in a garage or basement conversion, to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program.
• Includes ADU-specific appraisal requirements for appraisers to clearly identify, analyze, and report on ADU characteristics and the estimated rent the ADU can be expected to generate.
• Adds ADUs to the types of improvements that can be financed under FHA’s mortgages for new construction.

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

This update to FHA mortgage policies echoes the sentiments of the White House’s recent announcement related to homeownership. The release highlighted data showing how agencies have been implementing the Biden-Harris administration’s Investing in America agenda.

According to the release, FHA reported the first-time homebuyer rate is the highest it has been since 2000, and since January 2021 has supported almost 1.8 million homeowners with purchase mortgages, and 83.6 percent have been first-time homebuyers. The U.S. Department of Agriculture provided more than 7,100 direct housing loans over the past year, with some subsidizing loan rates down to 1 percent for certain borrowers.

“This is the highest number of loans since 2010, serving homebuyers with an average income of $42,918,” the White House stated. “Roughly 55 percent of these borrowers were female-headed households and 22 percent identify as Black or African American.”

The Department of Veterans Affairs also announced it has helped 145,480 veterans retain homeownership and/or avoid foreclosure.