Can ADU Income Help You Qualify In Seattle?

Seattle home prices can stretch your budget, so every bit of qualifying income helps. If your place has an accessory dwelling unit or you plan to add one, you might be wondering whether that rent can count toward your mortgage. You are not alone. In this guide, you will learn when ADU income can be used, what documentation lenders expect, and the Seattle-specific steps that make or break the outcome. Let’s dive in.

How ADU income works

FHA at a glance

FHA allows lenders to count ADU rent in many cases. For an existing ADU, lenders may use up to 75% of the estimated market rent, and for certain new ADUs added with an FHA 203(k) rehab loan, up to 50% of estimated rent may be counted. FHA also requires a full appraisal with ADU-specific analysis and supporting documentation. You can review FHA’s announcement for the policy details in HUD’s update on ADUs.

Freddie Mac in practice

Freddie Mac permits ADU rental income for qualifying in defined situations, often when the home is a one-unit primary residence with a single ADU. Expect the appraisal to include a market rent analysis for the ADU and comparable rentals. Some files may call for landlord experience or landlord education. Freddie’s systems can limit how much ADU income counts, and industry practice commonly flags entries over about 30% of total qualifying income. Check the latest rules in Freddie Mac’s ADU FAQ.

Fannie Mae and HomeReady

Fannie Mae allows ADU rent to help you qualify, with documentation and appraisal requirements similar to Freddie. As published in Fannie Mae’s Selling Guide, ADU rental income is typically limited to 30% of your total qualifying income, and it is allowed for purchases or limited cash-out refinances under the listed conditions. See the current policy under Fannie Mae’s rental income guidance.

VA, USDA, and portfolio loans

Treatment of ADU income varies by lender and product. Some portfolio lenders may be more flexible, and some may be more conservative. If you are considering a VA or USDA loan, ask the lender early how they handle ADU rent for qualifying.

Seattle rules that matter

Make the ADU legal first

To count the rent, the ADU must be legal and permitted under Seattle Department of Construction & Inspections (SDCI) rules. If a unit is unpermitted, lenders generally will not allow its income until it is legalized. You can find permit guidance for attached and detached ADUs on the city’s page for Accessory Dwelling Units, and see how the city handles illegal living units.

Register rentals under RRIO

If your ADU is rented, Seattle requires registration and periodic inspections through the Rental Registration & Inspection Ordinance (RRIO). Lenders and appraisers expect a lawful rental to be in good standing. Review the steps on Seattle’s RRIO program page.

Appraisals and comparables in Seattle

When ADU rent is used to qualify, most programs require a full appraisal with a rent analysis for the ADU and comparable rental data. Some investors prefer at least one comparable that also has an ADU. Learn how investors view ADU appraisals in Freddie Mac’s insights article. Seattle also offers pre-approved DADU plans and publishes ADU activity, which helps create more rental comparables over time. Explore the city’s resources at ADUniverse and backyard cottage guidance.

Documents lenders expect

• Proof the ADU is legal, such as SDCI permits and final inspections.
• Lease agreement, including rent amount and term, if the unit is occupied.
• Tax returns if you have rental history, usually Schedule E entries that show income and expenses. See the IRS instructions for Schedule E.
• A full appraisal with an ADU rent analysis, often using a Single-Family Comparable Rent Schedule or a Small Residential Income Property report.

If the ADU has not been rented before, lenders often rely on an appraiser’s market rent estimate and may apply program multipliers or vacancy factors. Fannie Mae outlines rental income documentation in its Selling Guide.

How lenders count the rent

If you have rental history, lenders often start with Schedule E net income and then adjust per investor rules. This can include adding back non-cash items like depreciation. Fannie Mae explains the standard approach to Schedule E in its guidance on income or loss from Schedule E. If the ADU is new or has no tax history, lenders may use the appraiser’s market rent and then apply program rules. For example, FHA’s policy allows up to 75% of market rent for an existing ADU, while Fannie Mae limits counted ADU rent to 30% of total qualifying income. Review FHA’s summary in HUD’s announcement.

Common limits to expect

• Percentage caps. Many conventional programs limit counted ADU rent to about 30% of total qualifying income. See Freddie Mac’s ADU FAQ and Fannie Mae’s Selling Guide for specifics.
• Extra reserves. Some lenders require additional cash reserves when ADU income is used. Ask your loan officer how many months they will expect.
• Transaction type. Programs may allow ADU income for purchases or limited cash-out refinances, not for cash-out refinances. Check your lender’s current rules.
• Appraisal requirements. When using ADU rent, expect a full appraisal with a rent schedule rather than an appraisal waiver.

Seattle buyer and seller checklist

• Confirm your ADU’s legal status through SDCI and collect permits and final inspections. Start here: Accessory Dwelling Units.
• If rented, keep your RRIO registration and inspection records up to date: RRIO requirements.
• Gather leases, rent ledgers or bank deposits, and any Schedule E pages if you have rental history.
• Ask lenders up front how they treat ADU rent, which investor they plan to use, what documentation they require, and whether they have percentage caps or reserve overlays.
• Order the appraisal with an ADU rent analysis so the report supports the income your lender needs.
• Use local market knowledge. Seattle’s ADU landscape evolves, and comparable rentals vary by neighborhood. City resources are here: ADUniverse and backyard cottage guidance.

Plan your next step

ADU income can expand your options in Seattle, but success depends on the right loan program, a legal unit, and strong documentation. If you want to leverage ADU rent for a purchase or refinance, align your permitting, RRIO registration, and appraisal details before you apply. When you are ready to map out a plan tailored to your property and goals, reach out to Cheryl Dillon for local guidance and a coordinated lender strategy.

FAQs

Can ADU income help me qualify for a mortgage in Seattle?

• Yes, if the ADU is legal and permitted, and the loan program allows it; FHA, Freddie Mac, and Fannie Mae have pathways that may count ADU rent with required documentation and appraisal support.

What proof do Seattle lenders need to count ADU rent?

• Lenders typically want SDCI permits and finals, a lease if occupied, a full appraisal with a rent schedule, and tax returns if you have rental history such as Schedule E.

How much of the ADU rent will lenders count?

• It depends on the program; FHA may use up to 75% of market rent for existing ADUs, and many conventional programs cap counted ADU rent at about 30% of total qualifying income.

Do I need to register my Seattle ADU to use the rent?

• If the unit is rented, Seattle requires RRIO registration and periodic inspections, and lenders expect the rental to be in compliance.

Can I use projected rent for a new ADU I plan to build?

• Some programs allow it in limited cases, such as FHA’s 203(k) rules that may use a portion of estimated rent; many conventional options do not allow projected ADU income without specific conditions.