FHA And HUD Update Mortgage Loan Policies
In the past, FHA loan rules noted that borrowers may be allowed to apply for a loan on a multi-unit home, including anticipated rental income from the unused living units for loan approval.
HUD Policy on Accessory Dwelling Units
The ability to do this depends on the borrower’s experience as a landlord and the lender’s willingness to offer the loan with that expected income as qualifying income. But now, there is an FHA policy that allows a similar consideration for existing or proposed Accessory Dwelling Units or ADUs.
According to a press release issued by the Department of Housing and Urban Development, FHA loan rules are modified to permit participating FHA lenders “to count income from small units of housing built inside, attached to, or on the same property as a primary residence ...when underwriting a mortgage.”
More Borrowing Power?
This change in FHA and HUD policy permits the lender to consider rental income from the ADU in the borrower’s qualifying income calculations. More borrowers are potentially able to qualify for an FHA loan under these new guidelines.
FHA and HUD officials believe the new rules “...enable more first-time homebuyers, seniors, and inter-generational families to leverage the power of ADUs to enhance the generational wealth building potential of homeownership.”
HUD Secretary Martha Fudge agrees. “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.”
Fudge adds that the new rules are part of a larger effort to increase housing inventory and reduce a “critical shortage of affordable housing in communities across the country.”
The Federal Housing Administration says an ADU is “a single habitable living unit with a means of separate ingress and egress that meets the minimum requirements for a living unit.”
An ADU is defined for FHA loan purposes as “...a private space that is subordinate in size and can be added to, created within, or detached from a primary one-unit single-family dwelling.”
Borrowers who want to know about this new option should discuss their questions with a participating FHA lender.
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