In a recent policy change, Freddie Mac now allows ADU (auxiliary dwelling unit) income to be considered qualifying income for a conventional loan application. This means your buying power can be increased when purchasing a home with an existing ADU dwelling. (Austin Irwin of Directors Mortgage passed along this great news! Talk to Austin for more details.)
What if there’s no tenant in the unit? Not a problem. You can still use the fair market value of the ADU to increase your buying potential.
“One of the popular benefits of our expanded policy is the potential to use rental income generated from an ADU on a subject 1-unit primary residence to qualify the borrower.”
Freddie Mac
According to Freddie Mac, 75% of the ADU income amount (or the fair market value of it), can be considered as a factor in your loan application, as long as the ADU income doesn’t exceed 30% of your total qualifying income.
What This Means for Buyers
If you’ve been curious about how having an ADU on your property could help your hinder your home-shopping experience, take this information as good news. Rather than considering how an ADU may be an extra burden on a property purchase, you’ll actually be able to make use of it.
A 3% down-payment will be required for loans using ADU income as a factor of buying power. Additionally, you’ll need to have at least one year of experience as a landlord and be able to provide proof of that to your lender. However, even without landlord experience, there’s a short online course you can take which will provide you with the qualifications needed.
