ADU income can now count toward loan qualification

[James Carlson]

Hey all prospective house hackers! Some big news last month.

Lenders can now count income from an accessory dwelling unit (ADU) toward your loan qualification, according to an announcement from the federal housing authority a few weeks ago.

What does this mean? It means that when you apply for a loan on a property with a mother-in-law suite, the loan officer can add potential rents from a carriage house or basement apartment (in certain circumstance: see below) when calculating your debt-to-income ratio. This basically bumps up your potential qualification. 

A few big notes on this:

-- They'll count 75% of estimated rents toward your income in the DTI calculation

-- They still won't count short-term rental income, only estimated long-term rents.

-- The definition of ADU is somewhat permissive but not perfect. Essentially, you have to have a separate entrance. This works for detached ADUs obviously and also any basement apartments with a separate entrance.

My thoughts:

-- This is great news, and a step in the right direction, but it's not perfect.

-- Why is the government so far behind on counting STR income???? You say the word "Airbnb," and they flip out.

-- There are a lot of house-hacking setups in Denver and Colorado Springs where we work that have an entrance to the basement that can be locked off from the upstairs but is actually the house's back door to the patio. That would not count under the definition of ADU.