The relaxation of regulations on Accessory Dwelling Units (ADUs) in backyard cottages is expected to help alleviate the housing shortage. The Federal Housing Administration (FHA) is pushing to include expected rental income in the calculation of loan amounts for ADU construction loans.
Currently, the government only allows expected rental income to be included in income for duplexes, not for ADUs under the renovation loan program. However, under the new FHA policy, ADUs’ expected rental income will be considered income for loan eligibility, allowing borrowers to receive a larger loan amount for new ADU construction under the renovation loan program.
The cost of building an ADU typically ranges from $149,000 to $400,000. An industry insider stated, “If expected rental income can be estimated as current income to qualify for a loan, it will be helpful for homeowners as they can receive a larger loan amount.”
In LA County, if an ADU is included as part of a single-unit property, the home value can increase up to 35%, making more loan amounts possible up to a maximum of $1.1 million for single-unit homes. Furthermore, the government is also considering including ADUs in the FHA-backed construction loan program, allowing for new construction of a house and ADU as one unit.
Previously, there were no special loan programs available for building ADUs other than using a home equity line of credit or finding other funding sources.
Julia Gordon, FHA Commissioner, stated, “The purpose of this policy is to enable more residents to own homes that can raise rental income, increasing the supply of housing and helping the rental market.”
Park Chihun, Senior Officer at Calpoint Lending, explained, “Many people have been rejected for loans because their monthly income is typically about $1,000 less than needed. With the new policy, expected rental income will be added to their income, allowing them to qualify for larger loans at lower interest rates.” He added, “This will benefit low- and middle-income earners who may have little equity but want to build an ADU.”
However, even with the new policy, the debt-to-income (DTI) ratio cannot exceed 45% to qualify for a loan, as before.
Article by KoreaDaily.com, Link to the original source.
Recent Comments