Are you looking to add value to your property, to create a separate place for your guests, or maybe generate extra income? It’s now easier than ever to get financing for these home improvements, which are considered Accessory Dwelling Units (ADUs) in the mortgage world.

Whether you are a current homeowner or looking to purchase your first home, an Accessory Dwelling Unit (ADU) might be a good investment for you. In this article, we look at how getting a loan for an ADU just got easier and what you need to know about Freddie Mac’s recent policy changes.

What Is an Accessory Dwelling Unit (ADU)? 

ADUs provide many benefits for homeowners. ADUs are second, smaller dwelling units that can serve a variety of purposes including a repurposed attic, basement apartment, granny flats or a new addition entirely. With the growing popularity of Accessory Dwelling Units, Freddie Mac policies are now offering more flexibility and options for adding an ADU to a home or financing a purchase when you propose to rent or build an ADU. ADUs are in increasing demand as a creative solution for sustainable homeownership.

Who Is Freddie Mac?

Freddie Mac (The Federal Home Loan Mortgage Corporation) was created by Congress in 1970 to keep money flowing to mortgage lenders regarding homeownership and rental housing. Freddie Mac does not make loans directly to homebuyers. Instead, Freddie Mac purchases loans from lenders so that they can replenish their supply of funds so that there can be more mortgage loans to other borrowers which may include banks, credit unions, and other lenders.

What Are the Changes for ADU Financing?

Freddie Mac’s changes make it easier for homeowners to get loans to support current and future ADU developments. These changes include:

• Rental income from an ADU may be used as qualifying income for borrowers. ADUs can be a great source for additional income when used as a rental unit. These units provide residual income that can help you with property upkeep and even help you with your mortgage payment and ultimately, the feeling of successful homeownership. Renting out your ADU unit may also provide a more affordable housing option for renters.
• Loans are now available for one ADU unit on 2- and 3-unit properties (not to exceed 4 units) in addition to 1-unit homes.  Freddie Mac is allowing ADUs on mortgages secured by additional property types. Previously, ADUs were only allowed on a 1-unit properties and rental income gained from an ADU was not permitted unless it was under special circumstances.
• A “No Cash-Out” refinance mortgage can be used to assist financing ADU projects. Buyers who are building, renovating or who have previously built or renovated an ADU have the option to use Freddie Mac’s CHOICERenovation Offering to finance their ADU needs. CHOICERenovation provides homebuyers the ability to include renovation costs within mortgage financing to assist the demand for affordable housing and cost-effective housing solutions. Renovate an existing ADU or add an ADU as part of your home purchase transaction.

How the ADU Changes Can Benefit You

Accessory Dwelling Units are increasing in popularity within the housing market. Expanding policies on ADUs are designed to help tackle housing shortages and access to credit. With easier access to these loans, homeowners are experiencing many benefits of these additional units. As a major purchaser of home mortgages, Freddie Mac is taking a giant leap forward to help secure homes with ADUs as well as loosening borrower qualification terms.

Is an ADU a Good Option for You?

Mortgage lending can be complicated and confusing, especially when there are new policies in place (even if they make things easier for you). If you need help deciding if an ADU is right for you, contact the Mortgage 1 team today with any questions you may have! Get started by calling 1-866-532-0550 today.