Loan Requirements
can i use adu income to qualify
ADU rental income can be used to qualify on most loan programs, but eligibility is gated by occupancy type, transaction type, program, and lender overlays — with a near-universal 30% income cap and full appraisal requirement.
Agency Guideline Requirements
Fannie Mae (Conventional)
ADU income from a 1-unit primary residence is eligible with restrictions tied to housing payment status and management experience :
| Scenario | Restriction |
|---|---|
| Has housing payment + management experience | Limited to 30% of total qualifying income |
| Has housing payment, NO management experience | Limited to 30% of qualifying income AND cannot exceed PITIA |
| No current housing payment | ADU rental income cannot be used |
- Income calculation: use the lesser of 75% of market rent (Form 1007) or 75% of the lease amount.
Freddie Mac (Conventional)
Eligible on 1-, 2-, or 3-unit properties for purchase or rate/term refinance only :
- ADU must comply with zoning and land use (legal, legal non-conforming, or no zoning).
- Full appraisal required — ACE appraisal waiver cannot be accepted when ADU income is used to qualify.
- Appraiser's rental analysis must include minimum 3 comparable rentals, at least one being an ADU.
- ADU rental income cannot exceed 30% of total stable monthly income.
- For purchase transactions: at least one borrower must complete a landlord education program, or have minimum 1 year of prior landlord/ADU rental management experience.
- Income calculation: Schedule E is standard; lease may be used only when property was out of service, purchased late in the year, or placed in service in the current year — using 75% of gross monthly rent.
FHA
ADU income from a 1-unit property is eligible with the following rules :
- ADU income cannot exceed 30% of total monthly Effective Income used to qualify.
- No rental history: use 75% of the lesser of (1) fair market rent from appraiser or (2) rent on the lease.
- Rental history exists: average the Schedule E amount; add back depreciation, mortgage interest, taxes, insurance, and HOA dues.
- Reserves required: 2 months PITIA after closing when ADU rental income is being used.
- Documentation: URAR (Form 1004/Freddie Mac Form 70) and Single Family Comparable Rent Schedule (Form 1007/Freddie Mac Form 1000).
Lender Overlay / Matrix Requirements
JMAC Lending — FHA Overlay
- Effective rental income from ADU must be <= 30% of total monthly qualifying income.
- Form 1007 required — use lesser of 75% market rent or 75% current lease.
- 2 months PITIA reserves required from borrower's own funds (1-unit with ADU, AUS approved).
- Hotel/Transient Use Disclosure required.
- Manual underwriting: 1 month base reserve + 2 months for ADU property + 3-month compensating factor = 6 months total PITIA reserves.
- If property is a duplex plus ADU (HUD treats as 3-unit): manual requires 1+2+6 = 9 months total.
JMAC Lending — Freddie Mac Conforming
- ADU allowed on 1-, 2-, or 3-unit properties; rental income considered for purchase and R/T refinance only.
- Full appraisal required regardless of AUS findings (ACE waiver not accepted).
- Appraiser rental analysis: minimum 3 comparable rentals, at least one with a rented ADU.
- ADU income cannot exceed 30% of total stable monthly income.
- At least one borrower must participate in landlord education or have 1+ year prior experience.
JMAC Lending — HomeReady
- ADU rental income may be considered in qualifying per rental income guidelines; follows standard Fannie Mae rental income requirements.
JMAC Lending — Venice DSCR (Investment)
- Owner-Occupied / 2nd Home (purchase or refinance): ADU income MAY NOT be used to qualify.
- Investment property: ADU income eligible.
- Long-term rental: use lower of Form 1007/1025 market rent or actual rent (copy of lease required if transferred).
- Short-term rental: follow doc type requirements; if using AirDNA, bedroom count must include both primary dwelling and ADU.
JMAC Lending — ZUMA Prime Non-Conforming
- OO / 2nd Home (purchase or refi): ADU income NOT eligible.
- Investment (purchase or refi): Long-term or short-term rental income eligible with standard documentation.
Forward Lending — Freddie Mac Home Possible
- "Rental Income from an ADU for 1-unit primary residence allowed per FHLMC Guide Section 5306.1."
- Full appraisal required when ADU income is used; ACE is ineligible for "primary residence (1-unit) when rental income from an ADU is used to qualify."
New Wave Lending — HomeReady (Fannie Mae)
- ADU income eligible per standard Fannie Mae rental income guidelines.
- "1 Unit with a ADU. See B4-1.3-05, Improvements Section of the Appraisal Report, for additional details related to acceptable ADU."
New Wave Lending — A-QM Self-Employed
- ADU rental income eligible (1-unit property with ADU).
- Appraisal must reflect legal zoning compliance; permits not required to establish compliance.
- Appraisal must include at least 2 sales comparables with an ADU; Form 1007 must include at least 1 rental comparable with an ADU.
- Purchase: use lesser of Form 1007 market rent or lease.
- Refinance: lease + 2 months proof of rent deposit; use lesser of Form 1007 or lease.
New Wave Lending — AQM DSCR
- OO and 2nd Home (purchase or refi): ADU income MAY NOT be used to qualify.
- Investment: eligible — lower of market rent or actual rent; if lease transferred, copy required.
Nations Direct — Non-QM (Bank Statement / Full Doc)
- ADU income eligible toward qualifying income.
- Appraiser must verify with building department that accessory unit is (a) legal and (b) may legally be rented.
- Purchase: 75% of appraiser's market rent opinion.
- Refinance: lease required + proof of receipt within 60 days of note date; 75% of rents used.
Mega Capital — Simple Elite Bank Statement
- ADU income eligible under the Full Doc program (landlord history not required).
- Under Alt Doc: ADU income eligible with:
- Appraisal reflecting legal zoning compliance.
- Appraisal includes at least 1 sales comparable with accessory unit; Form 1007 must include at least 1 rental comparable with an ADU receiving income.
- Multiple accessory units not permitted.
- Purchase (investment): lesser of Form 1007 or lease.
- Refinance: Form 1007 + current lease + 2 months proof of receipt.
- ADU income from primary residence and second homes is NOT allowed under Alt Doc.
Greenbox — Non-QM
- Both conditions of Section 9.5.4 must be met:
- Long-term rental: use lower of FNMA 1007/1025 market rent or transferred lease.
- Short-term rental: follow doc type requirements; if AirDNA is used, bedroom count must include primary dwelling + ADU(s).
- Note: Section 11.1.3 states "Income from an ADU may not be used to qualify" — this appears to apply to a specific product under Greenbox; verify which product applies to your scenario.
AD Mortgage — Non-QM
- ADU income eligible for DSCR calculations.
- Refinance: actual rent from FNMA Form 1007 supported by current lease + 2 months proof of receipt.
- Short-term ADU rental income is not allowed for refinance transactions.
- Rental income from ADU on other real estate (non-subject) properties will not be acceptable.
Key Rule Interactions and Guardrails
- 30% cap is near-universal — applies across FHA, Fannie Mae, Freddie Mac, and most lender overlays on primary residence transactions.
- OO / 2nd Home restriction is standard in Non-QM and DSCR — JMAC Venice DSCR, ZUMA, and New Wave AQM DSCR all prohibit ADU income for owner-occupied and second home transactions.
- Investment properties carry the broadest eligibility across programs.
- Full appraisal always required when ADU income is used — ACE waivers are explicitly prohibited in all Freddie Mac-based products.
- Freddie Mac purchase transactions trigger a landlord education requirement unless the borrower has 1+ year of documented prior experience.
- FHA and JMAC FHA require 2 months PITIA reserves from borrower's own funds; manual underwriting under JMAC FHA escalates reserves to 6 or 9 months depending on property configuration.
