The Rural Housing Service (RHS) proposes to amend the current regulation for 7 CFR 3555.102(b) and 7 CFR 3555.201(b)(2) specifically related to the purchasing or improving of sites that include income-producing land or buildings that are used principally for income-producing purposes. These changes are being considered to continue supporting and reinforcing the goals of addressing the Nation’s shortage of affordable housing, while increasing access to homeownership.  Changes contemplated by the Agency include: 1. Allow the Agency to issue a guarantee if loan funds are used for a single income producing ADU; 2. Allow the Agency to issue a guarantee if loan funds are used for home-based operations; 3. Clarify that borrowers are allowed to finance sites that include a single income producing ADU; and 4. Add the definition of an Accessory Dwelling Unit (ADU) to the regulation.

The updates are expected to enhance customer experience by allowing rental income from ADUs to be considered for program eligibility would help more borrowers qualify, thereby increasing access to homes with ADUs and benefiting the public. This increased flexibility would enable stakeholders to assist more applicants by offering more financing options, which in turn would help address the nationwide shortage of affordable housing. Additionally, it would expand the Agency's program flexibility by qualifying more borrowers for the SFHGLP, utilizing the potential rental income as part of the loan financing process.

This rule has been discussed at the SFHGLP’s monthly joint housing calls with FHA, FHFA, CFPB, VA, and Ginnie Mae where we provide updates on the status of our proposals and seek input from our partners. Stakeholders have discussed having a benchmark for grounds of administrative action and that was the basis for this plan to get started. Recommendations for simplifying the income calculation methodology has been received during quarterly stakeholder meetings and various housing conferences. All feedback received has been positive and determined to be consistent with other entities within the mortgage industry. An opportunity to provide additional input will be provided during the comment period when the proposed rule is published.