Fannie Mae Says Yes to ADU Income
Last week, we talked about multifamily homes and how they can open doors to long-term wealth through rental income. Now, Fannie Mae is taking that idea and applying it to smaller spaces — literally.
Effective immediately, Fannie Mae will allow borrowers to use rental income from an accessory dwelling unit (ADU) to help qualify for a mortgage. For many buyers, that cozy casita or garage studio could now make all the difference between “almost approved” and “approved!”
💡 What’s Changing
Fannie Mae’s update allows ADU rental income to be counted toward a borrower’s qualifying income on purchase and limited cash-out refinance loans.
Here’s the key breakdown:
✅ Applies to one-unit principal residences only.
💰 ADU income capped at 30% of the borrower’s total qualifying income.
🏠 Only one ADU can be included — properties with multiple ADUs or 2–4 unit homes are not eligible.
📝 Manual underwriting can adopt this rule immediately.
📄 Standard rental documentation (like leases and appraiser rent schedules) still required.
🧱 Defining an ADU
To qualify, an ADU must be an independent living space — meaning it has its own:
Sleeping area
Cooking area
Bathroom facilities
ADUs can be interior (like a basement suite), attached, detached, or even manufactured. However, they can’t serve as the primary residence if the main home itself is a manufactured home.
📈 Why This Matters
This update is a game-changer for affordability and flexibility — especially in high-cost markets like Arizona. It’s a nod to the growing popularity of “house hacking” strategies that let homeowners offset their mortgage payments through rental income.
By recognizing ADU rent potential, Fannie Mae is effectively encouraging creative homeownership solutions without requiring a full duplex or multifamily setup. Think of it as multifamily lite — the same spirit of investment, but with a smaller footprint.
🏡 ADUs are just the start! 🔗Catch up on our Mortgage Minute about multifamily homes to explore more ways rental income can work in your favor.
