The National Reverse Mortgage Lenders Association (NRMLA) submitted comments to the Federal Housing Administration (FHA) in support of its draft Mortgagee Letter (ML) that would allow accessory dwelling units (ADU) of rental income to be considered as part of the FHA financing process, including financing for Home Equity Conversion Mortgage (HECM) loans.
In conjunction with its HUD Issues Committee, NRMLA said ADUs have a lot of potential utility, particularly for seniors who wish to age in close proximity to their loved ones. The inclusion of ADU rental income when assessing a borrower’s HECM loan eligibility could “more realistically” calculate a borrower’s income, the association said, and prudently expand HECM program eligibility.
NRMLA also noted that certain components of the FHA’s draft ML could be clarified, including “the treatment of an ADU on or within a 2-4 unit property,” the association said in an email update to its members.
Last month, the FHA released a draft ML that, if implemented, would require updates to the FHA’s appraisal protocols and underwriting requirements, but would also modify the HECM program’s financial assessment to include ADU rental income.
“With the proposed policy provided in this draft ML, prospective borrowers financing a property with an ADU will be able to use the actual or projected rental income from the ADU to help meet FHA income guidelines,” the FHA said in its proposal announcement. “Specifically, this draft ML proposes policy on underwriting rental income from an ADU and for the analysis and reporting of ADU market rent in FHA appraisals.”
ADUs are currently playing a more prominent role in the reverse mortgage space. In addition to a growth of popularity in certain regions, reverse mortgage professionals are also seeking business from potential borrowers who want to fund the construction of an ADU on their property.
While a reverse mortgage loan may not be the first choice for funding ADU construction, it is a viable option, as long as specific requirements are observed, according to Renee Konstantine, reverse mortgage division director at EstaR Mortgage.