FHA Unveils Surprising Homebuyer Assistance: ADU Rental Income

HUD, the overseer of FHA, announced that it now allows FHA homebuyers to use ADU rental income to qualify for the loan.

A White House press release noted, among other housing actions, that the U.S. Department of Housing and Urban Development (HUD) published new Accessory Dwelling Unit (ADU) guidelines as of October 16, 2023.

Previously, an FHA buyer could purchase a home with an ADU, but could not use rental income from the structure to qualify for the loan.

Now the rules are changing: a buyer who finds a home with an ADU may use a portion of that income to qualify, even if the ADU is not currently rented.

See if you can qualify using FHA ADU rental income.

FHA buyers may use 75% of market rents from the ADU to qualify

HUD has released new guidelines allowing buyers to use 75% of projected ADU rental income to qualify.

The future rental income will be determined by the lesser of:

  • An appraiser’s fair market rent report, or
  • Actual rents from the lease agreement

To prove future rent, the lender will order a standard appraisal and a Fannie Mae Form 1007/Freddie Mac Form 1000 Comparable Rent Schedule. The buyer may use 75% of the typical rent for the area as long as the appraiser can support the amount with similar properties.

The buyer does not need previous rental experience to use future ADU rental income.

However, the income used to qualify can’t exceed 30% of the borrower’s income from employment and other sources.

Additionally, the buyer must have two months of the full payment in reserves after closing to take advantage of the new ADU rental income guidelines. For example, if the principal, interest, taxes, insurance, and mortgage insurance payment were $3,000 per month, the borrower would need $6,000 in accessible accounts after paying for the down payment and closing costs.

An example of how new ADU rules could help FHA buyers

The new guidelines will help first-time and repeat buyers afford homes at a time when housing prices and interest rates are at record levels.

Someone purchasing a $400,000 home with an income of $90,000 per year may not qualify for a home at today’s interest rates. But using ADU income to qualify may change the outcome.

Without ADU IncomeWith ADU Income
Home price$400,000$4,000
Monthly salary$7,500$7,500
Proposed ADU rentn/a$1,000
Qualifying ADU rentn/a$750
Total qualifying income$7,500$8,250
Debt-to-income (DTI) ratio52.5% (may not be approved)48% (may be approved)

If the borrower’s maximum DTI were 50% in this case, they would not qualify for the loan without the ADU income boost.


Big news out of FHA. Use potential ADU rental income on the home you’re buying to help you qualify. #firsttimehomebuyertips #househacking #mortgagetips #thisismortgage #fhaloans #multifamilyinvesting

♬ I Rise – Pentatonix

Use 50% of future income from an ADU addition

New guidelines also spell out rules for using future rental income from an ADU that doesn’t even exist yet.

Buyers and existing homeowners may use the FHA 203k home improvement loan to convert existing home space to an ADU, add a detached ADU, or renovate an existing ADU.

What’s more, applicants may use 50% of future market ADU rent to help them qualify for the loan.

For example, buyers are considering a $300,000 home with no existing ADU. They use a $350,000 FHA 203k loan to purchase the property and add an ADU. They can use 50% of the future rental income from that addition to qualify for the home purchase.

Related: Convert A Single-Family Home To A Multifamily Using FHA 203k

ADU examples

Accessory Dwelling Units come in many forms. Most picture an ADU as a smaller detached home somewhere on the lot. While this is one example, there are many other types.

  • Above-garage residences
  • Converted garages
  • Attached home additions
  • Basement conversions
  • And more

For this rule, the structure’s “highest and best use” must be as an accessory dwelling unit. It also must be “subordinate in size, location, and appearance to the primary Dwelling Unit and may not have separate metered utilities.”

The structure must also meet local zoning laws or be grandfathered in, and renting the unit must be legal.

In short, the lender and appraiser must agree that the structure is an ADU and it’s likely that a certain amount of rental income can be collected after the completed home purchase.

When do the new ADU guidelines take effect?

The changes were made in HUD’s system today, October 16, 2023.

Homebuyers who are interested in taking advantage of the new rules should apply now. HUD has advised lenders to start adhering to the new guidelines now.

Apply now to take advantage of the new FHA ADU rental income rules.


  • Tim Lucas

    Tim Lucas (NMLS 118763) has 20 years of hands-on mortgage industry experience helping everyone from first-time buyers to experienced investors. He purchased his first home at 26 with just $1,100 out-of-pocket and now owns real estate worth $2.4 million. Tim was the managing editor at national websites TheMortgageReports.com and MyMortgageInsider.com and has been featured in publications such as Time, U.S. News, MSN, and more. He is a licensed loan originator (NMLS 118763). Connect with Tim on LinkedIn, Twitter, and TikTok.