June 20th, 2024 9:48 AM

Back in October of 2023, Federal Housing Administration (FHA) made changes to support using ADUs as a means to qualify for financing options for those seeking to purchase properties with an ADU, rehabilitate existing structures to add an ADU or construct a new home with an ADU (FHA Info 2023-89). So we decided to bring an industry peer to share some insight from the Mortgage side about ADUs. 

Meet Paul Schmitt, an independent mortgage broker with 12 years of mortgage industry experience based out of North Phoenix. His focus is his client's short-term and long-term financial success with real estate. 

Here is what he had to share: 

Accessory Dwelling Units (ADUs) offer a strategic investment opportunity, allowing homebuyers and homeowners to earn additional income by renting out separate living spaces on their properties. ADUs, which can be converted garages, basements, or standalone structures, provide privacy for both the homeowner and the tenant, unlike traditional room rentals. These units not only generate rental income but also significantly increase the property’s overall value because they are independent from the primary dwelling unit. A variety of financing options like cash-out refinancing or home equity lines of credit make it feasible to build these units and lenders can now use up to 75% of documented rental income as useable income on a purchase application. The use of this income is aimed at helping homebuyers and owners by effectively boosting their income on paper, thus lowering their debt-to-income ratio to help them qualify for more expensive properties. Keep in mind that Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) all require specific guidelines such as having a separate entrance as well as a separate kitchen and bathroom facilities. 

Properties with ADU’s are particularly attractive in markets with high housing demands, offering flexibility and increased resale value. To navigate the complexities of financing properties with ADUs, consult with an experienced mortgage professional, ensuring all regulations are met while maximizing the investment’s potential returns. 

Image by Steve Buissinne from Pixabay

If you have any questions about your mortgage, refinancing or are thinking about purchasing a new home; reach out to him. He's friendly and full of information. He  can be found online: