Freddie Mac's broader ADU criteria goes into effect

Freddie Mac on Wednesday introduced promised flexibilities into its underwriting standards for accessory dwelling units, effective immediately.

The new guidelines for ADU loans the government-sponsored enterprise will buy confirms plans to provide more leeway on the number of units a borrower can finance and types of rental income that can be used to qualify.

“Previously, a mortgage secured by a property with an ADU was eligible for sale to Freddie Mac only if the property was a one-unit dwelling,” the GSE said in an update to its guide. “In response to recent zoning and ordinance changes in many geographic areas, we have expanded our ADU eligibility requirements to allow one ADU on two- and three-unit properties.”

Freddie also has expanded rental income use beyond a narrow range of circumstances. Previously, the loan had to be made through Home Possible, a program that allows particularly low down payments, or the loan applicant had to have a disability and a live-in aide who rented the accessory dwelling unit.

Now more types of one-unit ADU rental income on a single-family property used as a primary residence could be used to qualify for a purchase or no-cash-out refinance.

However, in line with promises housing agencies have made to be cautious in their expansion of underwriting, the new rules around ADU financing still have guardrails aimed at ensuring the loans involved support sustainable homeownership.

Rent payments are subject to a maximum, total stable monthly-income ratio of 30% and must comply with all rules around land use. Three comparable properties, one of which must have ADU rental income, have to be available for appraisals, and no waivers are allowed. Landlords must have at least one year of experience, or participate in an education program focused on property management. Loans may be subject to other restrictions as well.