ADU Income Now Allowed on Purchases and Refinances

Accessory Dwelling Units (ADUs) have become one of the most sought-after features of property. Whether it’s a detached guest house, a converted garage, a basement apartment, or another legally permitted living space, ADUs allow homeowners to generate rental income while increasing the overall value. Now, borrowers have even more reason to consider properties with ADUs. Updated mortgage guidelines allow rental income from up to two Accessory Dwelling Units to be used to help qualify for eligible purchase and refinance transactions, including certain DSCR loan programs.

More Qualifying Income

For many borrowers, qualifying for a mortgage can come down to income. Including projected or existing ADU rental income can significantly improve a borrower’s ability to qualify, increase purchasing power, or meet refinance requirements. If you’re purchasing a property with income-producing potential or refinancing an existing property with ADUs already in place, these updated guidelines create new opportunities for homeowners and real estate investors alike.

Eligible Property Types

• Single-Family Residences
• Two-Unit Properties
• Three-Unit Properties
• One or Two ADUs Allowed
• Total Property Unit Count Cannot Exceed Four Units

Documentation Requirements

The documentation process remains straightforward.

Purchase Transactions

For purchase loans, borrowers simply provide a signed letter of intent stating their intention to rent the ADU or ADUs.

Refinance Transactions

For refinance loans, borrowers provide:

• Current lease agreement
• One month of rent receipts

ADU Requirements

To utilize ADU income for qualification purposes, the following requirements apply:

• Each ADU must be legally permitted
• Each ADU must contain at least 500 square feet
• The appraiser’s market rent survey must support market rent

ADU Income and DSCR Loans

Real estate investors may also benefit from these expanded guidelines. Eligible DSCR transactions can utilize rental income generated from ADUs, creating additional opportunities for investors seeking to maximize cash flow and financing options.

Contact us to learn how rental income from an ADU could help you qualify for your next mortgage.