Freddie Mac expands guidelines to allow rental income from ADUs

[Kyle Deutschmann]

For all you potential (and current) house-hackers out there - Freddie Mac announced recently that they are expanding their lending guidelines for conventional mortgages to allow rental income from Accessory Dwelling Units (ADUs) for both purchase mortgages and no-cash-out refinances for single family residences.

"Previously, the loan had to be made through Home Possible... or the loan applicant had to have a disability and a live-in aide who rented the ADU. Now more types of one-unit ADU rental income on a single-family property used as a primary residence could be used to qualify for a purchase or no-cash-out refinance."

"However... the new rules around ADU financing still have guardrails" so make sure to talk to your trusted Mortgage Advisor to see if this could be an option for you! 

https://www.nationalmortgagene...

[Chris Mason]

Quote from @Tony Ngo:

Thank you Kyle. Have you hear anything on 2-4 Units with ADU?

The same guideline allows for a single ADU to exist on a 2 or 3 unit property.

Prior to that, any ADU on any multiunit was an automatic disqualifier for any Agency loan. 

So this is pretty huge. :)

Also worth noting that the counting of rental income is only for single family primary homes. 

We also don't just get to mix-n-match the guidelines we like. Another thing to keep in mind is that Fannie guidelines do not automatically apply to Freddie loans, there are scenarios where your loan officer puts you in the "Fannie Mae Only" or "Freddie Mac Only" bucket without even telling you, for example if you have student loans with no required payments (due to COVID forbearance, IBR, or any other reason), Fannie and Freddie treat that very differently. If applicable, you wouldn't get to combine the more generous of the two, you have to stick with the good and bad of one of the two, and the entire set of guidelines (both when it helps, and when it hurts) is what would be applicable. For an example of what that looks like form recent celebrity current events, you don't get to sue in a United States court and cite British laws ("But the British court said...!") in the hopes of a win. When your loan officer picks one, Fannie or Freddie, that's the "court of law," the FULL set of rules, that applies. 

Aaaaaaaand another note. A lot of institutions that loan directly to consumers, such a banks, "direct lenders," or credit unions, are "Fannie only" or "Freddie only." There's no such thing as that for mortgage brokers (obviously), but if you do not wish to avail yourself of the opportunities that working with one represents, then you should at least ask if the direct lender, bank, or credit union, in question, is a "Freddie shop" or a "Fannie shop." I do not work at Bank of America and am not authorized to speak for them, but for a prominent "household name" example, based on "BofA said I couldn't get a loan because...." questions I get from folks, I'm 99% certain that BofA is a "Fannie shop," or at the very least their loan officers are only trained on Fannie. I am about 80% sure (as opposed to the 99% I am with BofA) that Wells Fargo does Freddie on the back-end, but only trains for Fannie. So it appears (again, about 80% certain of this) that the WF loan officer who does their own research can offer Freddie stuff (& their underwriters will OK it), but the WF LO who just follows the assigned continued training can only speak intelligently to Fannie. I could use local examples, but big banks are the nationwide "household names." 

Another note, on the future. It's Fannie and Freddie, so they aren't revolutionary institutions. They will make a minor incremental change, observe for a few years, and then adjust. We can all speculate about what the future may hold, but I'm guessing the future changes will be measured in years from now, not months from now. The Agencies usually focus on 3-year sets of data. They want to see how the loans with the new guidelines perform over X full years, and 3 is often X.

Here's the full bulletin from Freddie Mac directly: https://guide.freddiemac.com/a...