Updated July 2026. A version of this post was originally published February 2024.
Accessory Dwelling Units (ADU), previously known as in-law suites or accessory units, may be appearing more frequently in the loans you’re reviewing. They can add value to a property, provide flexible housing solutions for family members, and help address housing needs in today’s challenging market. In fact, over 1.6 million ADUs are estimated to exist in the US and the number is growing. These units also often carry a smaller environmental footprint, another reason their popularity continues to grow.
If ADUs aren’t part of your everyday workflow, understanding how they are defined, classified, and underwritten is essential. Our very own Amy Hopkins, Regional Underwriter, shares what underwriters and lenders should know when navigating loans secured by properties with ADUs. With some added updates and essential items to leverage in 2026.
Getting to know ADUs
An ADU is typically a smaller, individual unit used for residential dwelling on the same lot as a single-family home. They could have been added to, created within, or detached from a one-unit primary dwelling, but must provide living conditions (sleeping, cooking, bathroom facilities) for the occupant. However, they are not considered an ADU if they can only be accessed through the primary dwelling. Independent living, full living facilities, and privacy are key distinctions.
Not only can ADUs add value to a home that is potentially larger than the cost of building them, but they also provide homeowners with more flexibility than ever during a time of rising interest rates and difficult market conditions.
Examples of ADUs could include:
- A basement apartment with its own entrance.
- An over garage apartment.
- A small addition attached to the main home.
- A detached backyard unit.
- In some cases, a manufactured home classified as real property/ used as the ADU (when it meets the program’s real property requirements). See requirements from Fannie Mae and Freddie Mac.
Whatever design a borrower chooses, this unit type provides borrowers with more opportunities in a challenging mortgage marketplace. Always refer to GSE guidelines to help you understand property requirements.
But what other characteristics should you focus on when you encounter these loans?
ADU characteristics to help determine unit eligibility
1) The ADU must be subordinate to the main dwelling
The ADU should be smaller in size and contribute less to value than the primary unit.
2) The ADU must be self-contained
Expect to see:
- Kitchen capabilities (Fannie Mae is specific: cabinets, countertop, sink with running water, and a stove or hookup)
- Sleeping area
- Bathing / bathroom facilities
- Separate ingress/ egress (its own entrance)
3) Classification matters: ADU vs. “true” multi unit
A property that looks like “one unit + ADU” can sometimes function like a 2 unit. Appraisers consider factors such as separate meters, separate address, and whether it can be legally rented, and they make the unit count determination in the appraisal’s analysis.
For more information, refer to Fannie Mae’s Selling Guide here or learn more about ADUs on Freddie Mac’s website here.
With this living type, an evident benefit of ADUs is that they provide separate living space to parents, adult children, or family members. Every borrower’s situation is different and homeowners are turning to solutions like these to meet their needs in an ever-evolving mortgage marketplace. Knowing how to navigate the guidelines for ADUs puts you ahead and keeps you ready for when you might face these in your loan/appraisal reviews.
What’s changed for ADUs? Key updates to know
Update #1: Fannie Mae now allows ADU rental income to help qualify (with guardrails)
Fannie Mae updated its Selling Guide to allow rental income from an ADU on the subject property to be used toward qualifying income, a major shift for these guidelines.
Key requirements (Fannie Mae):
- 1‑unit principal residence only
- Purchase and limited cash‑out refinance only
- Rental income may be derived from one ADU only (even if multiple ADUs exist)
- ADU rental income used for qualifying is capped at 30% of total qualifying income
- Standard rental income documentation rules still apply
Update #2: Expanded ADU eligibility (Fannie Mae); tied to UAD 3.6
Fannie Mae also expanded property eligibility for ADUs in its UAD 3.6 Policy Supplement.
Effective March 31, 2026 (and only available for loans using UAD 3.6), the Selling Guide update allows:
- Two‑ to three‑unit properties to include ADUs, as long as the total units (primary structure + ADUs) do not exceed four
- Up to three ADUs on a one‑unit property
- One ADU on certain manufactured‑housing scenarios (and expanded MH Advantage options), subject to the specific UAD 3.6 eligibility terms
Your “default” mindset of “one ADU only on a 1‑unit property” is still the baseline in many workflows, but expanded scenarios are now possible when the file is delivered under the UAD 3.6 policy path.
Update #3: Freddie Mac (Property + rental income rules remain highly structured)
Freddie Mac continues to allow ADUs on eligible 1‑, 2‑, or 3‑unit properties—one ADU per property—and provides detailed appraisal expectations.
Freddie Mac’s ADU definition includes:
- kitchen + bathroom + separate entrance
- independence from the primary dwelling
- smaller in size and contributory value than the primary dwelling
Freddie also notes that the absence of cooking appliances does not change ADU classification.
Using rental income from an ADU: Fannie Mae vs. Freddie Mac
Fannie Mae (as of DU® 12.1 / 2026)
Fannie Mae permits ADU rental income for qualifying under the specific conditions noted above (1‑unit PR, purchase/LCO refi, 30% cap, one ADU income). DU® 12.1 applies these checks and messaging.
Freddie Mac (structured and documentation‑driven)
Freddie Mac allows rental income from an ADU to be considered as stable monthly income (when eligibility requirements are met).
- Operationally important Freddie Mac highlights:
- Freddie commonly applies a 75% factor to gross rent (lease or market rent) to account for vacancy/operating costs.
- ADU rental income may be considered up to 30% of total stable monthly income used to qualify (per Freddie‑focused training material).
- Projected rent cannot be used if rent won’t start on or before the first mortgage payment due date (e.g., ADU still under construction/renovation and lease starts later) – see more here.
Navigating the appraisal review for properties with ADUs
Working with properties that have ADUs requires a lot of detail-oriented work and a good pulse on the guidelines related to ADUs. Navigating the appraisal review portion of the underwriting process is no different.
1) Zoning compliance is critical
- Some ADUs are legal non‑conforming (grandfathered).
- If an ADU is not allowed under any circumstance, eligibility may depend on specific conditions (for example, confirm the existence won’t jeopardize hazard insurance claims + meet appraisal support requirements).
- Freddie Mac specifically describes how illegal zoning scenarios may be eligible for certain 1‑unit cases but not others.
2) Comparable sales & reporting expectations
- Freddie Mac expects at least one comparable sale with an ADU when available, and detailed ADU descriptions in the report.
- Freddie training materials emphasize including both ADU sales comps and rent comps to support market rent when rental income is used.
3) Don’t blend ADU GLA into the primary dwelling GLA
Even when the ADU is finished and livable, the ADU and the primary dwelling should be analyzed as distinct components of the collateral (reporting and comparable selection should reflect that separation). Freddie’s ADU appraisal section emphasizes detailed ADU reporting and its effect on value/marketability.
If you have any questions about how to handle this loan type, feel free to contact our Regional Underwriting Team or contact your Sales Representative today!
Additional underwriting ADU considerations
It’s important to stay in the know and understand the details when you’re working on a loan with this property type. So, here are high-impact items professionals may commonly miss:
- ADU vs. multi-unit misclassification: Look for separate meters, separate address, separate entrance, local legal rentability; these can drive a 2 unit conclusion rather than 1 unit + ADU. See more about this here.
- Kitchen requirements are program specific: Fannie Mae outlines minimum kitchen elements and clarifies hotplates/microwaves aren’t stove substitutes – see more here.
- Manufactured housing + ADUs changed materially in 2026 for Fannie Mae (UAD 3.6 path): expanded eligibility exists but is conditional and tied to UAD 3.6 implementation – see more here.
- Freddie’s manufactured housing rule: when the primary dwelling is a manufactured home with an ADU, the primary must be multi-wide – see more here.
This list is not exhaustive – for more specifics on GSE program nuances, always refer to the Fannie Mae and Freddie Mac Selling Guides.
More insight and resources from Enact
In 2026, ADU rental income has become a mainstream qualifying tool under Fannie Mae (with DU® support), and both agencies continue refining eligibility via appraisal/valuation modernization (UAD 3.6). As ADUs continue to evolve as a housing solution, staying current on eligibility, appraisal, zoning, and rental income requirements helps ensure accurate and compliant underwriting decisions.
When working on loans with this property type, your Enact MI team has got you covered. Our Regional Underwriting Team is available to assist you Monday-Friday 8am to 8pm ET at 800-444-5664 option 2.
Be sure to make the most of your MI experience, too. Please explore our many underwriting resources and underwriting tips for more information. Because going the extra mile comes easy for us, we also offer a comprehensive suite of training resources to help boost your industry experience.
Source: Amy Hopkins is a Regional Underwriter for Enact.
The statements in this article are solely the opinions of Amy Hopkins and do not necessarily reflect the views of Enact or its management. Opinions expressed are for educational purposes only. Always review current, applicable agency guidelines and consult your compliance and legal advisors.
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