The Federal Housing Administration (FHA) published a new draft version of a Mortgagee Letter (ML) on Thursday that would update the mortgage insurance requirements on single-family homes with accessory dwelling units (ADU). The proposal is designed to offer additional flexibility for calculating market rent and using ADU rental income to help qualify for FHA-insured mortgage financing.

“If finalized, these updates would allow more borrowers to qualify for FHA financing for properties with ADUs, including 203(k) renovation loans,” the FHA said in its announcement. “FHA’s action today advances the goals of the Biden-Harris Administration’s Housing Supply Action Plan.”

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