New FHA Policy Helps Homebuyers and Owners with Extra Rental Spaces
FHA's new policy on accessory dwelling units can make home buying easier. Explore the potential benefits for homeownership and building wealth.
Having extra spaces like in-law suites, garage apartments, or tiny homes in the backyard can now be a big help for people buying homes or those who already own one. Recently, the US Department of Housing and Urban Development made an important decision. They said that when banks are deciding if someone can get a mortgage from the Federal Housing Administration (FHA), they can now count 75% of the money they could get from renting out these extra spaces. This rule also applies to spaces that haven't been built yet, but will be.
What's important is that these extra spaces have their own door and meet all the rules for people to live in. They can be a part of the main house or completely separate.
The reason for these new rules is to help with the problem of not having enough houses in the country. It also wants to help people who are buying their first house or people who already own one by giving them the money they need to build these extra spaces.
Right now, the United States needs 6.5 million more houses to fit all the new families, according to Realtor.com. In the last ten years, 15.6 million new families were formed, but only 9.03 million new houses were built. Even if you count the buildings with multiple homes, there's still a big gap of 2.3 million homes.
Because of this, the number of homes available for rent is at its lowest since 2000, sitting at 5.6% in the last quarter of 2021 and even lower in the second quarter of 2022, says Realtor.com. Rent prices have also gone up. From 2016 to 2021, the average rent went up by 22%.
Having these extra spaces, known as ADUs, can help with the problem of not having enough houses. They can be added to the houses that are already there and can be rented for less than other places in the same area, says Emily Hamilton, who studies housing at George Mason University.
The number of these extra spaces in the US is growing. From 2009 to 2019, the number went up by 8.6% every year on average. More of these spaces are being added to homes for sale too. In 2019, 6.8% of homes for sale had these extra spaces, up from 1.6% in 2000.
Most of these extra spaces are in places where rent is going up fast. California, Florida, Texas, and Georgia have the most of these spaces, with California, Florida, and Texas having rent go up faster than the rest of the country in the last two years.
Now, banks can look at how much money these extra spaces could bring in when they're deciding if someone can get a mortgage. This can make a big difference because it can mean that someone can borrow more money. These extra spaces can bring in between $1,600 and $2,500 every month in big cities, according to Maxable, a company that helps homeowners with these kinds of spaces.
With mortgage interest rates going up to 8%, it's getting harder for people to buy houses. This new rule could be really helpful for people who want to buy their first house. It's all about making it more affordable for people who want to own a home.