May 31, 2022
New flexibilities have just been announced for properties with ADUs. We can now use rental income from an ADU to help buyers qualify for a home loan.
How does this help? Let’s look at an example.
Let’s assume Jack and Jill earn $70,000/year and have $350/month in consumer debt payments (car payment plus minimum payments on their credit card). Consequently, they can afford a mortgage payment of $2,275/month. At 5.5% interest and a 15% down payment, that’s about a $390,000 house. If they found a house with an ADU they could rent for just $900/month, they could increase their budget to about $510,000.*
I believe this program can turn folks who can barely afford to buy in our market into solid contenders.
The fine print:
- Fannie Mae requires a minimum down payment of 15%. Freddie Mac requires 3-5% down, depending on income.
- One unit, primary residence only
- Manufactured homes must have stick built ADUs (no manufactured home + manufactured ADU)
- Stick built home with manufactured ADU may be eligible.
- No appraisal waivers allowed if using rental income from the ADU to qualify
These are brand new guidelines! Fannie Mae is only allowing ADU rental income through a special partnership with New American Funding. These guidelines are not available from all lenders. Freddie Mac just announced their guidelines two days ago. All other guidelines for ADUs must be followed.
* The fine print: Interest rates are estimates for illustrative purposes only and are not reflective of the actual interest rates available on any given day.
$390,000 sales price with 15% down = $331,500 loan amount. Owner occupied, single family residence in Jefferson County, WA. Interest rate is 5.5%. APR is 5.618%. 740 credit score. Monthly payment = $1882.22 principal & interest + $81.25 homeowner’s insurance + $260.00 property taxes + $27.63 mortgage insurance = $2,251.10/month.
$510,000 sales price with 15% down = $433,500 loan amount. Owner occupied, single family residence (with an ADU rented for $900/month) in Jefferson County, WA. Interest rate is 5.5%. APR is 5.603%. 740 credit score. Monthly payment = $2461.37 principal & interest + $106.25 homeowner’s insurance + $340.00 property taxes + $36.13 mortgage insurance = $2,943.74/month.