{"id":186348,"date":"2026-01-03T10:10:11","date_gmt":"2026-01-03T17:10:11","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=186348"},"modified":"2026-01-03T10:10:14","modified_gmt":"2026-01-03T17:10:14","slug":"fannie-mae-has-changed-the-adu-game-should-you-invest","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/fannie-mae-has-changed-the-adu-game-should-you-invest","title":{"rendered":"Fannie Mae Just Made It Easier to Invest in ADUs\u2014Here&#8217;s What That Means For Investors"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">Fannie Mae just supersized a landlord\u2019s potential income by expanding financing for <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rookie-591\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">accessory dwelling units<\/span><\/a><span data-preserver-spaces=\"true\"> (ADUs).<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In doing so, the government-sponsored mortgage underwriter has made it easier for everyday investors to add rentable units, boost <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flow<\/span><\/a><span data-preserver-spaces=\"true\">, and tap into the land around properties they already own, thereby driving <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-appreciation-in-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">appreciation<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">By expanding the ways ADUs can be financed and loosening rehab lending guidelines through its<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/singlefamily.fanniemae.com\/originating-underwriting\/mortgage-products\/accessory-dwelling-units#:~:text=ADUs%20can%20add%20value%20to,to%20a%20borrower&#039;s%20existing%20home.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> HomeStyle, HomeReady, and Construction-to-Permanent renovation programs<\/span><\/a><span data-preserver-spaces=\"true\">, Fannie Mae has opened the door for homeowners to become landlords and for small investors to turbo-boost revenue from their existing single-family and small <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/finding-multifamily-properties\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">multifamily<\/span><\/a><span data-preserver-spaces=\"true\"> buildings.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What\u2019s Changed?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In its<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/singlefamily.fanniemae.com\/news-events\/announcement-sel-2025-10-selling-guide-updates\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> Selling Guide Announcement SEL-2025-10<\/span><\/a><span data-preserver-spaces=\"true\">, Fannie Mae announced an expansion of ADU eligibility to increase housing supply and make it easier to update housing stock, stating the update <\/span><span data-preserver-spaces=\"true\">was intended<\/span><span data-preserver-spaces=\"true\"> to \u201cmeet the growing demand for flexible and affordable housing solutions.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Specifically, Fannie Mae will purchase loans for <\/span><span data-preserver-spaces=\"true\">two-to-three unit<\/span><span data-preserver-spaces=\"true\"> homes that include an ADU. <\/span><span data-preserver-spaces=\"true\">In total, each property is now allowed to contain four units, so a single-family unit can contain three additional ADUs, <\/span><span data-preserver-spaces=\"true\">as long as<\/span><span data-preserver-spaces=\"true\"> it <\/span><span data-preserver-spaces=\"true\">adheres to<\/span><span data-preserver-spaces=\"true\"> zoning laws.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Additionally, ADUs are permitted on single-wide manufactured homes, removing a previous restriction requiring multisection units. <\/span><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> addresses rural and lower-density areas where manufactured homes are more prevalent.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Possible configurations for investors looking to add ADUs to their portfolios are:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">A duplex + one ADU<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A duplex + two ADUs<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A triplex + one ADU<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">A single-family + three ADUs<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Energy and Resiliency Improvements Can Be Financed<\/span><span data-preserver-spaces=\"true\"> Too<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">With the rise in extreme weather-related incidents, financing energy and climate-related resiliency improvements, such as storm and fire-resistant measures, could be a big deal for investors in vulnerable states looking to safeguard their ADUs without incurring the cost of a <\/span><span data-preserver-spaces=\"true\">full<\/span><span data-preserver-spaces=\"true\"> energy report.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">When used as rentals, these improvements could be a big draw for potential guests and tenants. The addition of ARM loans means that owners can update and adapt existing homes without being saddled with pricier 30-year mortgages.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Appraisals and Income<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">In the near future, <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/home-appraisal-for-investors\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">appraisals<\/span><\/a><span data-preserver-spaces=\"true\"> could present a problem, as these configurations are so new to the market that appraisers might have a tough time pulling comps to meet Fannie Mae guidelines for <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-heloc\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">HELOC<\/span><\/a><span data-preserver-spaces=\"true\"> financing or sales.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With regard to<\/span><span data-preserver-spaces=\"true\"> income, a portion of ADU rent can also <\/span><span data-preserver-spaces=\"true\">be used<\/span><span data-preserver-spaces=\"true\"> to qualify, as the rent from a small multifamily helps an owner-occupant looking to <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/house-hacking\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">house hack<\/span><\/a><span data-preserver-spaces=\"true\"> qualify for a loan. With one unit as the primary residence\u2014when purchasing or doing a <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/cash-out-refinance-vs-heloc\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash-out refi<\/span><\/a><span data-preserver-spaces=\"true\">\u2014only one ADU&#8217;s rent can be used (even if more exist), and its revenue <\/span><span data-preserver-spaces=\"true\">is capped<\/span><span data-preserver-spaces=\"true\"> at 30% of your total qualifying income.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, for argument\u2019s sake, say you were using your ADU as a <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/short-term-rental-investing\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">short-term rental<\/span><\/a><span data-preserver-spaces=\"true\">, and Leonardo DiCaprio decided to stay there, paying you $10,000 a night.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">First, great for you! Second, you couldn\u2019t use all his rental income for your refi. However, the money it contributes to your total qualifying income could raise your purchasing power. <\/span><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> is not necessarily a bad thing, as it protects against over-leveraging and the temptation to inflate rental income.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Here\u2019s an example, according to<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.innovativemtgbrokers.com\/adus-fannie-mae-update\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> Innovative Mortgage Brokers<\/span><\/a><span data-preserver-spaces=\"true\">:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Your base qualifying income is $6,000 a month.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Market rent for the ADU is $1,200; lenders usually count 75% ($900) for qualifying purposes.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">While $900 is <\/span><strong><span data-preserver-spaces=\"true\">30% of $3,000<\/span><\/strong><span data-preserver-spaces=\"true\">, we\u2019re adding it to $6,000. The cap says ADU income used can\u2019t exceed <\/span><strong><span data-preserver-spaces=\"true\">30% of your total<\/span><\/strong><span data-preserver-spaces=\"true\">. With $900, your total becomes $6,900, and the $900 used is within that 30% cap.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Throwing an FHA Loan Into the Mix<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">FHA lending guidelines are baked into the new Fannie Mae ADU rules, allowing for lower down payments and credit scores than with conventional loans. \u201cWe\u2019re going to allow both existing rental income for ADUs and prospective rental income to <\/span><span data-preserver-spaces=\"true\">be included<\/span><span data-preserver-spaces=\"true\"> in the underwriting process,\u201d said Julia Gordon, HUD\u2019s Assistant Secretary for <\/span><span data-preserver-spaces=\"true\">housing<\/span><span data-preserver-spaces=\"true\"> and <\/span><span data-preserver-spaces=\"true\">federal housing commissioner<\/span><span data-preserver-spaces=\"true\">, noting that the change is designed to help borrowers finance properties with ADUs or add them during renovations, according to <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/themortgagereports.com\/107948\/new-fha-policy-adus?utm_source=chatgpt.com\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">The Mortgage Reports<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Renovation Lending Becomes More Investor-Friendly<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The ADU update includes <\/span><span data-preserver-spaces=\"true\">major<\/span><span data-preserver-spaces=\"true\"> improvements to HomeStyle Renovation loans. Here are the main changes:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Up to 50% of renovation costs can <\/span><span data-preserver-spaces=\"true\">be disbursed<\/span><span data-preserver-spaces=\"true\"> at closing (no outside borrowing or leaning on a contractor to front the starting costs)<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Larger renovation budgets are allowed for manufactured housing.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Putting New ADU Lending Guidelines to Use in the Real World: An Investor Playbook<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cHidden density\u201d is the new value-add: Look for units with convertible space. <\/span><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> can include:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Oversized lots<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Alley access<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Detached garages<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Basements or underused structures<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Existing duplexes or triplexes with extra yard space<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Zoning is the grim reaper: The new Fannie Mae ADU rules are good, but they\u2019re not good enough to overcome prohibitive zoning. Before imagining your overflowing bank account, double-check that your dream property complies with applicable zoning guidelines. Confirm:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">How many ADUs are allowed?<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">What are the size and height requirements?<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">What are the parking requirements?<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Are detached ADUs permitted?<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">The latter taps into the YIMBY versus NIMBY movement, <\/span><span data-preserver-spaces=\"true\">where<\/span><span data-preserver-spaces=\"true\"> wealthier single-family neighborhoods oppose ADUs for the same reasons they do not allow multifamily dwellings: fears of parking issues, turning communities into rental-heavy, transient areas, and lowering <\/span><span data-preserver-spaces=\"true\">the<\/span><span data-preserver-spaces=\"true\"> quality <\/span><span data-preserver-spaces=\"true\">of schools<\/span><span data-preserver-spaces=\"true\">.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cIf you have the 16-foot poison pill in your regs, it\u2019s not good enough,\u201d says Kol Peterson, a nationally recognized ADU expert and founder of <\/span><a class=\"editor-rtfLink\" href=\"http:\/\/accessorydwellings.org\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">AccessoryDwellings.org<\/span><\/a><span data-preserver-spaces=\"true\">, in a recent <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.buildinganadu.com\/the-adu-hour-podcast\/zaj4p47zehjf4ddntpsy28llf7shnp\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">podcast<\/span><\/a><span data-preserver-spaces=\"true\">. \u201cIt needs to be much better \u2026 that doesn\u2019t mean that everywhere in the country has good codes except for Portland, Seattle, and a few jurisdictions in California.\u201d<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Cost of Building an ADU<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">As welcome as the new ADU-friendly guidelines from Fannie Mae are, they don\u2019t translate to \u201cfree new rental units for everyone!\u201d ADUs cost money. Just how much, however, varies <\/span><span data-preserver-spaces=\"true\">greatly<\/span><span data-preserver-spaces=\"true\">. Converting a glorified garden shed, attic, or basement is likely to cost way less than replicating an Ibiza-style lounge in your back garden.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">According to home renovation site <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.angi.com\/articles\/how-much-do-adu-costs.htm\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Angi<\/span><\/a><span data-preserver-spaces=\"true\">, the average ADU costs $180,000, but <\/span><span data-preserver-spaces=\"true\">an ADU<\/span><span data-preserver-spaces=\"true\"> generally costs between $60,000 <\/span><span data-preserver-spaces=\"true\">to<\/span><span data-preserver-spaces=\"true\"> $285,000, depending on size, scope, and location.<\/span><span data-preserver-spaces=\"true\"> It\u2019s possible to scrape by with a sub-$80K ADU in less-expensive markets\u2014bearing in mind that ADU requirements mandate a kitchen, bathroom, and a separate entrance. When converting a part of your existing home, <\/span><span data-preserver-spaces=\"true\">the exterior costs of weatherproofing a roof, walls, and sometimes even installing insulation can be taken<\/span><span data-preserver-spaces=\"true\"> out of the equation.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Adding doors without buying new properties almost seems too good to be true for an investor<\/span><span data-preserver-spaces=\"true\">, but it\u2019s<\/span><span data-preserver-spaces=\"true\"> a practical way to bring in additional income for homeowners <\/span><span data-preserver-spaces=\"true\">and<\/span><span data-preserver-spaces=\"true\"> increase an investor&#8217;s portfolio, <\/span><span data-preserver-spaces=\"true\">while helping with<\/span><span data-preserver-spaces=\"true\"> the housing crisis.<\/span> <span data-preserver-spaces=\"true\">With financing on board, this could be a <\/span><span data-preserver-spaces=\"true\">game changer<\/span><span data-preserver-spaces=\"true\"> in a <\/span><span data-preserver-spaces=\"true\">high-interest rate<\/span><span data-preserver-spaces=\"true\">, low-inventory environment.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fannie Mae just supersized a landlord\u2019s potential income by expanding financing for accessory dwelling units (ADUs). In doing so, the government-sponsored mortgage underwriter has made it easier for everyday investors [&hellip;]<\/p>\n","protected":false},"author":613725,"featured_media":186351,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-186348","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186348","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613725"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=186348"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186348\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/186351"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=186348"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=186348"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=186348"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}