Using ADU Rental Income to Qualify for a Mortgage
Rent from an ADU can do more than pay you back after the build. Under some Fannie Mae, Freddie Mac and FHA guidelines, a lender can count part of that rent as income when it decides how much you can borrow. That can be the difference between qualifying and coming up short.
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- Matched with lenders who finance ADUs
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How lenders count ADU rental income
Lenders qualify you on your debt to income ratio. Adding ADU rent to the income side can raise how much you are able to borrow, whether you are buying a home with a unit or refinancing one you own.
Fannie Mae and Freddie Mac guidelines allow lenders, in certain cases, to count part of the rent rather than all of it. FHA guidance has also been updated to allow some ADU rental income to count. Each program sets its own conditions, and each lender can add its own.
The lender needs evidence of the rent. That is typically a signed lease, or an appraiser's estimate of what the unit would rent for. Projected rent on a unit not yet built is harder to use, so ask early how your lender treats it.
At a glance
- Best for: buyers or owners who plan to rent the ADU
- Programs: some Fannie Mae, Freddie Mac and FHA loans
- Proof needed: a lease or an appraiser's rent estimate
- How much counts: part of the rent, set by the program and lender
Counting ADU rent pros and cons
Pros
- Can raise how much you qualify to borrow
- Rewards buying a home that already has a rented unit
- Works with mainstream loan programs, not only niche lenders
- Rent can help cover the new payment
Cons
- Only part of the rent is usually counted
- Unbuilt units are harder to count
- Lenders may require a lease or extra appraisal work
- A vacant unit still leaves you owing the full payment
When another loan fits better
If you are an owner occupant buying with less saved, compare how FHA treats ADU rent. If you need the rent to justify the build, run the payment through the ADU loan calculator first. If you are building from scratch, an ADU construction loan may be the starting point.
FHA and 203k loans for an ADU
Government backed routes for buying or converting.
ADU loan calculator
Estimate a payment from the rate, term and amount a lender quoted you.
ADU construction loans
Paid to your builder in draws as the unit goes up, then converted or refinanced.
ADU rental income questions
Can you use rental income from an ADU fannie mae?
Yes, in certain cases. Fannie Mae guidelines allow lenders to count part of ADU rental income toward qualifying, usually backed by a lease or an appraiser's rent estimate. Your lender applies the current rules to your file.
How to generate income with an ADU?
Long term rental is the most common route and the easiest for a lender to count. Short term rental may be limited by your city. Some owners instead house family, which saves money but does not count as income.
What are the downsides of ADUs?
Building costs, permits and utility work add up, and rental brings tenant management and vacancy risk. Lenders also count only part of the rent, so the unit may not cover its own payment.
Talk to a lender who finances ADUs
Tell us about the unit, the rent you expect and your plans. We will connect you with a lender who can explain how ADU rental income counts on your loan.
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