Count Rent from ADU to Qualify

Filed under: Borrower Tips

Let’s talk about how you can use rent from ADUs to qualify as a buyer. When you are qualifying for a mortgage, it’s smart to utilize all of the income sources that are available.

What is an ADU?

An Accessory Dwelling Unit (ADU) is a big thing in California, especially because most places in the state allow property owners to place at least 1 or 2 ADUs on the lot. They are also known as granny flats or mother-in-law rentals.

There are a lot of properties that have these rentals. It doesn’t have to be totally separate from the main home on the property. But it does need to be fully self-sustainable with its own entrance, a kitchen, a separate heating source, etc. It can be either attached or detached.

Rent Income Helps with Loan Qualification

The recent change, especially for conventional loans in particular, is that we are allowed to factor in the rental income from the ADU. It’s like an underwrite similar to someone who is buying a 2-unit property with the intention of living in one and renting out the other one. We can use the extra income from the rent to help qualify for the loan.

Not a lot of people want to buy a duplex, triplex, four-plex, etc. It can be a great financial move, but it’s not right for everyone. But an ADU might make more sense for people.

With ADUs, as long as the appraiser can find at least 1 comparable property that has an ADU for rent, then we can use those numbers when figuring out the loan. ADUs are a great option to help you qualify for a more expensive property that you wouldn’t be able to buy otherwise.

Personalized Support for Mortgages

If you are looking for a property to buy and want to have a rental unit, then talk to me about the financing options. My team at Franklin Loan Center is always here to help with home purchases, refinancing, and more. Reach out for personalized recommendations for your financing.

Franklin Loan Center | NMLS 237653
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