Fannie's ADU income rule: how does the 30 percent cap actually bite on my numbers?

Question

Looking at a 1,900 sq ft single family with a permitted 1-bed over the garage, already has its own meter. Listing at 465k. Market rent on the ADU looks like 1,450 based on three comparable units within a mile.

My W2 is 82k, so 6,833 a month qualifying. If projected ADU rent counts, the usable amount is capped at 30 percent of total qualifying income. I keep getting tangled on whether that means 30 percent of 6,833 (so 2,050 available, my 1,450 fits fine) or 30 percent of the combined figure including the rent, which works out lower. Second reading gives me about 2,929 of headroom which also clears 1,450, so maybe it doesn't matter here, but I want to know which denominator I'm supposed to use before I structure anything around it.

Also the lender will presumably haircut the 1,450 before it ever reaches the cap. Anyone dealt with the actual worksheet?

Rena Expert · Accepted Answer

The cap is expressed against total qualifying income, meaning the figure after the rental income is included. So the denominator is the combined number, and the rental piece can be at most 30 percent of that total. Practically that means the countable rent can be up to roughly 43 percent of your non-rental income, since if rent equals 0.3 of the total then the wage portion is 0.7 of it. On 6,833 of W2 that's about 2,929 of countable rent, which matches your second reading. Confirm the worksheet mechanics with your lender in writing, because lenders apply agency rules through their own overlays and some will be more conservative than the published policy.

Halyard is right that the vacancy factor lands first. Gross 1,450 less 25 percent is 1,088, well inside the cap either way. Your constraint isn't the cap. It's whether the appraiser supports 1,450.

That's where I'd spend the attention. Your three comps within a mile are your evidence, but the appraiser produces the rent figure the lender uses and doesn't have to agree with you. If the appraisal comes back at 1,100 market rent, your countable income drops to about 825 and your approved loan amount moves accordingly. Have a plan for a 25 percent miss on the rent number rather than a plan for the cap.

Separately, check whether the ADU's permit status is clean at the county level, not just "has its own meter." A separately metered unit that was never permitted as a dwelling gives you an appraiser who won't assign it rent and possibly a lender who won't lend at all. Pull the permit history before you're in contract with earnest money at risk.

ryanmck27 · Answer

The haircut is the part that decides your answer, not the denominator. Every rental income calculation I've seen applied to owner-occupied purchases runs the gross market rent through a vacancy and maintenance factor before anything else happens, and 25 percent is the number that comes up most. So your 1,450 walks in as roughly 1,088. At that level both of your readings of the cap leave you room, which is why the arithmetic feels academic. It stops being academic if you find a property where the ADU rent is a big fraction of your income.

Fannie's ADU income rule: how does the 30 percent cap actually bite on my numbers?

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