ADU means Accessory Dwelling Unit. By definition from FHA an ADU can be inside a home, outside a home attached or detached.

It just requires the area which will consist typically of a kitchen, bathroom, bedroom and living area aka mother in law suite that has it’s own entrance and exit without going through the main home. Technically this could mean a basement with all the amenities.

Let’s say you are purchasing a home and your Debt Ratios are a bit tight. you might be able to purchase a single family residence with an ADU and rent it out to help pay the mortgage payment.

You will need a form 1007 rent comparable schedule with the appraisal and if leases are available those as well to figure the rent you can use. If refinance you may need tax returns showing rental income received to count the income.

The rental income used will be multiplied by 75% and then added to your income and not used to offset the mortgage payment itself. In addition, the rental income cannot be more than 30% of your overall income.

You must have two months reserves to be able to use rental income from an ADU. Rental from ADU is not allowed on cash-out refinances.

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