Publisher: LA Project REACh
Publication Date: September 2022
This white paper explores the role of Accessory Dwelling Units (ADUs) in expanding housing supply and promoting homeownership preservation—particularly for low- to moderate-income households and communities of color in the Greater Los Angeles region. Developed by the LA Project REACh ADU Financing Subcommittee, the paper examines why ADUs have not yet reached scale and identifies financing barriers that limit broader adoption.
Drawing on research and stakeholder input from financial institutions, housing experts, appraisers, and government agencies, the paper outlines existing ADU financing scenarios, evaluates gaps in current mortgage products, and highlights recent policy shifts—such as updated Freddie Mac guidance on using ADU rental income for loan qualification.
Key Topics Covered
- The potential of ADUs to address housing shortages and support community stabilization
- Common challenges in ADU financing for lenders and consumers
- Six real-world ADU financing scenarios, from cash-funded construction to purchase-plus-build models
- Appraisal and valuation challenges affecting ADU feasibility
- Policy and product recommendations for lenders, GSEs, and housing agencies
- A proposed pilot framework to test scalable ADU financing solutions
Who This Resource Is For
- Housing policymakers and regulators
- Lenders, CDFIs, and housing finance professionals
- Housing advocates and planners
- Local governments exploring ADU programs
- Organizations focused on closing the racial homeownership gap