Funding for residence with ADU

7 Replies

My wife and I currently run an Airbnb in our basement apartment in our primary residence. We'd like to hold onto it as a rental and buy another SFH as our primary with an already-built separate ADU. My question is, do banks consider the potential rental income of the new ADU the same way they'd consider rents if we purchased a multifamily property when determining how much they'd be willing to loan us? The price range we are looking in might be slightly outside of what lenders might consider our purchasing power just from our combined w-2 income, but the numbers easily work if ADU rental income is considered on the new property.

Thanks in advance for your guidance!

Hi @Lee Barbara , I believe if you have the Airbnb income on 2 years worth of tax returns, they can use that as income.  The thought is that it is basically a business that you are running and they will want to see that income on 2 returns.  I would be happy to run the question by one of my lenders if you want a professional opinion.  Let me know if you would like an introduction.  

Also, if you can get a signed lease for the top part of your home before you close on your next home, you can count 75% of that rental income towards your DTI ratio.

@Lee Barbara the answer here is that is it very unlikely.  It will also be almost impossible to use any AirBNB income on your current property to help you qualify for your next primary home.  If you are buying another primary property that is a single family home that will have an accessory unit the rental income from that unit also cannot be used to help you qualify.  If you were buying a duplex the other side WOULD help you qualify but a single family home.  There are some exceptions to this - if you were disabled and your boarder income was from medical staff and other things like that.  So you might be hard pressed to use income in either scenario with a Government/Conventional type of loan.

@Brad Hammond Thanks, Brad. This is helpful. I have been learning about how two years of our business income taxes could be counted, but even for that I'm wondering if, when we move out, if they'll still consider that income. Specifically, I am wondering about the income that the ADU on the new property will produce, and whether it is considered the same way as the rental income on a multifamily is.

@Lee Barbara Do you plan on keeping the property you are vacating or will you sell it? If you keep it and have about two years of income from the short term rentals on your tax returns, you should be able to use that to qualify for your next home. You likely will not be able to use the anticipated short term rental income from the property you’re buying. If you arent opposed to doing a long-term rental for a bit, You may want to see if you can get an executed lease for the main house you’re vacating to help qualify for your next home.

@Lee Barbara I am very sorry here but if you are using a Fannie/Freddie/FHA/VA/USDA type of loan you will have to have a 12 month lease to qualify for a loan through them. Air BNB or "boarder" income cannot be used for these loan types. Even if you have 2 years of income on your tax returns...you will still be required to show a 12 month lease on your vacating property. To buy a primary property a different loan could be used but your terms, rates, conditions, etc. will be very different.  I don't mean to put a damper on this but this is the right information that you need to know.

@Andrew Postell That’s really valuable information. This is sort of what I had assumed. I’m just poking around trying to educate myself on how we can make this next move. We have a decent w-2 income, so we may be able to make this happen regardless.