Can you use income from ADU/in law apt to help qualify for FHA?

Question

Hey BP,

I am trying to make this deal work but right now my numbers are tight.

The property I am looking at is a new construction side by side duplex, both units identical. For some reason it is not considered a legal duplex and instead is considered a SFH with a in law.

1 unit is renting for 1400/month which would be the deal maker in this situation however since its a in law my lender says they cant use this income to help me qualify for the FHA loan.

I'm really torn here, I love this house and really want to make this work.

Christie Gahan · Answer

Curious, how many lenders have you talked to?

Emanuel Santa-Donao · Answer

Yes, HUD actually posted positive guidance about this a few months ago. Was a great win! https://www.hud.gov/press/press_releases_media_advisories/hu...

Albert Bui · Answer

Then Have someone else review your income can you qualify purely off your own employment income or do you need some rental income addition to help you qualify. This tells a lender well basically the borrower either has enough to qualify or not and if they need a coborrower or to use rental income or not. Its best to diagnose the situation first before prescribing a solution or remedy.

@Matthew Kwan

@Carlos Valencia

Carlos Valencia · Answer

Hello Nick,

If its not showing as a legal duplex then your stuck. Is it just showing as single family with like an attached in law suite? Unless they can somehow prove the in law suite is an actual separate unit then they can use it as additional income. Only other option would be co-borrower or more money down but then why use FHA right. Also removing more liabilities if possible to help qualify.

@Albert Bui @Matthew Kwan

Angeliki Salonikios · Answer

Sometimes lenders won’t take Airbnb earnings into account unless the short term rental has been active for a full two years. That would mean a full two tax years. If the sellers confirm it has been longer than that then you should check around with other lenders to see who would be willing to take that income into account.

Christie Gahan · Answer

Thank you Emanuel Santa-Donao.

Good to Read the actual press release.

Carlos Valencia · Answer

Usually when you pull property profile it shows on there what type of property it is as well as the history. These property profiles you get from title companies.

Patrick McCann · Answer

Hi Nick, have you checked the property record card with county/city to see what they actually have the property recorded as? Agents do make mistakes on listings and owner disclosures aren’t exactly always accurate either.

Caroline Gerardo · Answer

@Christie Gahan varies greatly. It's true you can configure 4 in CA, OR,  FL and many others, often you have to go two story to fit the lot size and set backs.

In Maine where he is, it's 2 units total.

Most states allow ADU. County only enforces minor setback rules; BUT, an ADU is not the same in a residential appraisal in terms of valuation.  Often the value is much less than an original duplex or tri-plex etc... Other problem is units have fewer comps.

The MLS only "says" what the listing agent typed in, can be wrong. Non permitted units in a residential appraisal get counted as zero, or asked to be ripped out. The county planning desk either has permits signed off or not -they would be the source that the appraiser verifies. If built to code the "new construction contractor or builder" could get the job card signed off to sell this as two legal units.

His question is about using the income. Without knowing how this is configured or why he says it's "new but has tenants" it's hard to help him.

My thoughts are: all things are fixable. It's the lender he went to.

@Alecia Loveless I call that lucky. I am sending you a dollar to buy a lotto ticket, your good fortune is better than mine.

Off topic but VERY SAD -- all the new ADU laws of adding housing have not make a dent. We need to build more small units.

Christie Gahan · Answer

Have you made an offer?  Are you buying from the builder?  The larger builders seem to be onboard with rate buy downs, etc.  I bought a property 6 mos ago and negotiated a perm rate buy down paid for by the sellers.  Locked at 5.99%    Helped a lot!   Initially, I asked for a 321.  Then I looked at the numbers.  For the same amount of money as a 321, I could just buy down a point on the loan.   The sellers had agreed to pay $X for the temp buy down.  We just did an amendment that said, "Oh yeah.  We had to change loan programs.  We want the amount we already agreed to , to go over here."   It worked out.

Are you using a mortgage broker ?  You might benefit from someone that reps a lot of different programs.  Good Luck.

Can you use income from ADU/in law apt to help qualify for FHA?

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