Originally published in the October 17, 2025, issue of AI’s Appraisal Now
Reprinted with permission from AI

Fannie Mae has updated its rental income policy to allow income generated from an Accessory Dwelling Unit (ADU) to be considered as part of a borrower’s qualifying income, marking a notable shift in how these secondary units may influence loan eligibility and underwriting decisions.

Under the new policy, ADU rental income can be included provided all of the following conditions are met: 1) the property must be a one-unit, principal residence, limited to purchase and limited cash-out refinance transactions; 2) Rental income may be derived from only one ADU, even if the property includes multiple units; and 3) the amount of ADU rental income used for qualification cannot exceed 30% of the borrower’s total qualifying income.

All other Fannie Mae Selling Guide requirements for rental income documentation remain in effect.  The change will be reflected in Desktop Underwriter® (DU®) version 12.1 during the first quarter of 2026, though lenders may implement the new standard immediately for loans eligible for manual underwriting.

While this policy update may expand borrower access to financing properties with ADUs, appraisers should remain alert to potential risks of double counting, both in income and valuation analysis.

Because the rental income from the ADU may now contribute to borrower qualification, appraisers must take care to avoid overlap between the contributory value of the ADU as part of the property’s overall market value. For example, if an ADU’s income stream is capitalized or otherwise reflected in an income-based indication of value, the same rental contribution should not also be implicitly captured in the sales comparison adjustments.  Conversely, when relying primarily on comparable sales, appraisers should verify whether market participants are already reflecting the ADU’s income potential in sale prices, particularly in markets where ADUs are common and actively rented.

As financing flexibilities evolve, understanding how lenders and secondary market participants treat ADU income will be increasingly important in supporting credible appraisal opinions.