Accessory Dwelling Unit (ADU)

Updated 2026-05-17

An Accessory Dwelling Unit (ADU) is a secondary, independent living space located on the same property as a primary single-family dwelling. ADUs are distinct from the main home but cannot be sold or legally separated from it. They are also known as guest houses, granny flats, in-law suites, accessory apartments, or secondary suites.

Characteristics of an ADU

For a structure to qualify as an ADU, it must include essential living facilities independent of the primary residence:

• Kitchen: Must have cooking facilities.
• Sleeping area: A designated space for sleeping.
• Bathroom facilities: Includes a toilet, sink, and bathing area.
• Separate entrance: Residents must be able to access the ADU without going through the main home, ensuring privacy.

Types of ADUs

ADUs can be configured in several ways:

• Attached ADU: An addition to an existing home.
• Detached ADU: A stand-alone structure on the property (e.g., a carriage house, converted outbuilding, or a manufactured home).
• Internal/Converted ADU: A converted portion of an existing home (e.g., a basement apartment or an apartment above a garage).
• Garage Conversion: A garage or shed converted into a living space.

Purpose and Benefits

ADUs serve multiple purposes for homeowners and the broader housing market:

• Extended Family Housing: Provides private living spaces for family members, such as elderly parents or adult children.
• Rental Income: Can be rented out on a short-term or long-term basis, generating income for the homeowner and potentially adding value to the property.
• Addressing Housing Shortage: Increases the overall supply of housing options on existing lots.
• Affordability: Can offer more affordable rental options in single-family zoned areas compared to traditional single-family homes, though they may not always meet specific "affordable dwelling unit" policy definitions.

Financing ADUs

Lenders like Government Sponsored Enterprise (GSE) treat ADUs as a standard home feature or improvement. Properties with ADUs can generally be financed using various loan products, including:

• VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC): The definition of an ADU aligns with the general industry understanding for VA loan purposes. A manufactured home on the site could also be considered an ADU.
• Conventional Loans: Standard purchase or refinance loans.
• Home Possible Mortgages: For adding a new ADU to an existing property (e.g., Government Sponsored Enterprise (GSE)'s HomeStyle Renovation loan).
• Construction-to-Permanent Financing: For building a new home that includes an ADU.

Regulatory Context

The presence and regulation of ADUs can vary significantly by locality and state. MLOs should be aware that while ADUs can offer more affordable rental options, they may not always qualify as "affordable dwelling units" under specific local or state housing policy definitions.