The Latest in ADU Financing For Homeowners

The Federal Housing Administration (FHA) is working to simplify the process for homeowners to buy a property with an Accessory Dwelling Unit (ADU) or build one themselves. By proposing changes to its guidelines, the FHA aims to help those with low to moderate income and little home equity to secure a loan for their ADU project.

ADU exterior design

The Federal Housing Administration (FHA) has proposed several changes to its guidelines to make it easier for people to buy a home with an accessory dwelling unit (ADU) or to build one.

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Fernanda Castillo

The proposed changes to the Federal Housing Administration guidelines are aimed at aiding people with little home equity and low to moderate income to get a loan for their project. This is excellent news for homeowners as building an Accessory Dwelling Unit would be easier!

1

What's The Federal Housing Administration (FHA)?

2

FHA's Consideration of ADU Rental Income

3

Why build an ADU?

Book a Free Consultation to see how you could benefit!

Founded in 1934 by the Congress, the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development, provides mortgage insurance on loans made by FHA-approved lenders. FHA mortgage insurance protects lenders against losses if a property owner defaults on their mortgage, allowing lenders to offer more mortgages to homebuyers.

Having insured more than 50 million mortgages in the USA, they are one of the largest insurers in the world.

"We collect mortgage insurance premiums from borrowers via lenders. We use this income to operate our mortgage insurance programs for the benefit of homebuyers, renters, and communities."

- The Federal Housing Administration

If you have more questions or doubts regarding FHA, how they function, or their services, visit their website to find their FAQs and their consumer resources!

FHA's Consideration of Accessory Dwelling Unit Rental Income

The first draft of the proposal, posted in April, seeks to provide additional flexibility in calculating the market rent of ADUs and using ADU rental income to qualify for FHA financing, enabling more borrowers to be eligible for FHA financing for properties with ADUs, including 203(k) renovation loans, which allow borrowers to finance the purchase and renovation of a property in one loan.


Here are some takeaways from the draft ML:

  • FHA has proposed updates to its appraisal protocols, underwriting requirements, and the Home Equity Conversion Mortgages' (HECM) financial assessment to allow the addition of income from ADUs to assess a borrower's qualifying income for purposes of obtaining FHA-insured mortgage financing.
  • The updates would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans. The proposed changes align with the Biden-Harris Administration's Housing Supply Action Plan, which aims to increase the supply of affordable housing in the United States.
  • The proposed updates aim to help homeowners with ADUs to generate additional rental income, which could help them afford mortgage payments and maintain their properties.
  • Prospective borrowers financing a property with an ADU will be able to use the projected rental income from their unit to help meet FHA income guidelines.
  • This draft ML proposes an analysis and reporting of ADU market rent in FHA appraisals.

Why build an ADU?

As mentioned before, ADUs have proven to be a great solution to the housing problem in the nation, but besides that, ADUs have plenty of benefits! Here are three main reasons why building an Accessory Dwelling Unit, it's a fantastic investment.

The number one reason Homeowners decide to construct one of these units, it's because of the rental activities they offer. By having a place to rent, they can create a second stream of income that can help them pay mortgages, debts, etc.

The second one is additional space. By adding a Casita to their property, homeowners can keep their families close to them by using their new space.

  • And the third benefit, it's the property value! By building a Granny Flat, the value can increase roughly from 20-30% depending on each property estate and circumstances. Not only is this attractive enough if plans to sell the property in the future are in mind, but increasing the overall value can even help build generational wealth!

If you're a homeowner looking to build an ADU on that extra piece of land on your property, the FHA's initiative could be a game-changer for you. While it might take some time for the initiative to be approved, other financing solutions are available in the meantime. For instance, Multitaskr provides financing solutions for homeowners in the areas of San Diego and Los Angeles! Start your project today!

Book a Free Consultation to see how you could benefit!

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