Federal Housing Administration Expands Access to Mortgage Financing for Homes with Accessory Dwelling Units AKA “Tiny Houses”. This ground breaking policy could help bring tiny houses into the main stream. If the federal government is willing to finance them, local zoning may warm up to allowing them and collecting more tax revenue per lot.
Steve Schappert of Connecticut Real Estate has written a zoning guideline that to allow tiny houses to be built as an accessory dwelling unit. Schappert will begin making appointment with zoning departments in CT over the coming weeks. Click here to read
New Accessory Dwelling Unit (ADU) policy opens up enhanced financing options for borrowers and strengthens the housing supply and homeownership objectives of the Biden-Harris Administration.
What is an Accessory Dwelling Unit?
An Accessory Dwelling Unit (ADU), sometimes known as a “granny flat,” “in-law suite,” or “secondary suite,” is a self-contained living space within or attached to a single-family home or located on the same property. ADUs are designed to be separate from the primary dwelling unit, with their own entrance, kitchen, bathroom, and sleeping quarters. These units can take various forms, including converted basements or garages, detached structures, or even added sections within the primary home.
ADUs serve various purposes and can be used in different ways:
- Rental Income: Homeowners often use ADUs as rental units to generate additional income. Renting out the ADU can help offset mortgage or property maintenance costs.
- Guest Accommodation: ADUs provide a private space for guests, such as visiting family members or friends.
- Aging in Place: Some homeowners build ADUs to accommodate elderly family members while allowing them to maintain their independence.
- Home Office or Studio: ADUs can be used as a dedicated space for a home office, art studio, or other creative endeavors.
- Affordable Housing: ADUs can address the shortage of affordable housing in many communities by providing smaller, more affordable living options.
- Increase Property Value: Adding an ADU can potentially increase the overall value of the property, making it a valuable investment.
The regulations and requirements for ADUs vary by location, so it’s essential to check with your local zoning and housing authorities to understand the specific rules and permitting processes in your area. Many cities and states have recently relaxed zoning restrictions to encourage the construction of ADUs as a solution to affordable housing challenges and to provide more flexibility for homeowners.
The Press Release:
WASHINGTON – The U.S. Department of Housing and Urban Development, through the Federal Housing Administration (FHA), has introduced a groundbreaking policy. This policy empowers lenders to consider income generated from Accessory Dwelling Units (ADUs), which are small housing units located within, attached to, or situated on the same property as the primary residence, as part of the mortgage underwriting process. This innovative change enables rental income from ADUs to be included in the borrower’s qualifying income, making it possible for more borrowers to access FHA financing for properties featuring ADUs, including the 203(k) Rehabilitation mortgages. ADUs can be rented out to tenants, contributing to the housing supply within communities. Furthermore, this policy supports the utilization of ADUs to boost generational wealth-building opportunities for first-time homebuyers, seniors, and inter-generational families. Today’s announcement aligns with the Biden-Harris Administration’s Housing Supply Action Plan and underscores their commitment to addressing affordable housing challenges and expanding homeownership access. For additional details, please refer to the fact sheet released today by the White House, which outlines new actions on homeownership.
HUD Secretary Marcia L. Fudge remarked, “This action to facilitate ADU financing is part of our broader effort to combat the critical shortage of affordable housing nationwide and empower individuals to enhance the value of their homes. The Biden-Harris Administration is dedicated to increasing the housing supply, enabling more people to access affordable, quality housing that supports their families’ well-being.”
Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon added, “With our new ADU policy, we will assist households with more modest means in maximizing the benefits of homeownership for wealth-building. Additionally, this policy contributes to the availability of affordable housing in neighborhoods where it is most needed and least accessible.”
Deputy Assistant Secretary for Single Family Housing Sarah Edelman explained, “The new policies provide greater flexibility in using rental income from ADUs, expanding access to FHA-insured financing for homes with ADUs. We are pleased to have received extensive support from the housing industry, which has contributed to delivering this significant solution for homebuyers nationwide.”
The FHA defines an ADU as a habitable living unit with separate entry and exit points that meet minimum living unit requirements. An ADU is a private space that is smaller and can be integrated, created within, or separated from a primary one-unit single-family dwelling.
The new policies:
- Permit some borrowers to qualify for an FHA-insured mortgage on a property with an existing ADU by considering 75% of the estimated ADU rental income. This added income flexibility enhances access to homes with ADUs for homebuyers with limited incomes, allowing them to take advantage of the wealth-building potential offered by properties with ADUs.
- Enable some borrowers to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program by utilizing 50% of the estimated rental income from a new ADU they plan to attach to an existing structure, such as a garage or basement conversion. This helps more homeowners with limited incomes build ADUs, which, in turn, supports their homeownership and boosts the production of ADUs as rental housing.
- Introduce ADU-specific appraisal requirements for appraisers to precisely identify, assess, and report on ADU attributes and the estimated rent expected from the ADU. The guidance in the Mortgagee Letter aids appraisers in more accurately establishing the market value of a property with an ADU and advancing ADU valuation. This, in turn, increases access to ADU financing as more cities and states remove zoning barriers.
- Include ADUs as part of the improvements that can be financed under FHA’s mortgages for new construction. This allows new homes to be constructed with ADUs, an important source of ADU production in addition to renovating existing structures.
FHA-approved lenders can immediately begin offering mortgages to borrowers for properties with ADUs under these new policies.
HUD’s mission is to create strong, sustainable, inclusive communities and provide quality affordable homes for all. For more information about HUD and its programs, please visit www.hud.gov and https://espanol.hud.gov.
Read The Press Release HUD No. 23-237 HUD Public Affairs (202) 708-0685 FOR IMMEDIATE RELEASE Monday, October 16, 2023
For free consultaion on how this affects your property call Steve Schappert 203-994-3950
Learn More about the Loan Call Bill Lavigne at Total Mortgage. 860-585-6285