USDA will guarantee rural home loans on properties with rental units from December 28

Buyers using the U.S. Department of Agriculture's guaranteed rural home loans will be able to finance properties that include a rentable accessory dwelling unit (ADU), such as a converted basement or attic, a unit built over a garage or a separate small house on the lot, from December 28, 2026. The Rural Housing Service published the final rule in the Federal Register on October 29. It also makes clear that homes designed for a home-based business can be financed.

The rule changes the Single Family Housing Guaranteed Loan Program, which backs mortgages that approved lenders make to low- and moderate-income buyers in rural areas. Until now, the program's regulations barred guarantees for land or buildings "typically used principally for income-producing purposes." In its March proposal, the agency explained that it would not finance a property with a building, such as a freestanding ADU, used to generate income. Units that housed relatives in a multigenerational household were already allowed.

What changes on December 28

The rule adds exceptions to two restrictions. A guarantee can now be issued for "an otherwise qualifying property which contains, or will contain, a single or multiple accessory dwelling units," and the program's site rules get the same exception. A second change covers homes with design features for home-based businesses "such as childcare, product sales, or craft production," as long as the business does not require specific commercial real estate features. The regulations had been silent on such homes, the agency said in March.

For the first time, the rules also define an ADU: a habitable living unit inside or detached from the main house, smaller than it, with its own way in and out, and forming a single interest in real estate with the house. A living unit needs safe running water, sanitation and sewage disposal, adequate heat, hot water and electricity, a bathroom with a toilet, sink and tub or shower, and a kitchen or kitchenette with a sink and a stove hookup or similar cooking appliance. The agency said the Federal Housing Administration, the Department of Veterans Affairs, Fannie Mae and Freddie Mac use comparable definitions.

The rent will not help you qualify

The rule does not let lenders count expected rent from the unit when they decide whether a buyer can afford the loan, although some commenters asked the agency to address ADU income in the rule. The agency replied that program rules bar lenders from using income they cannot verify, that is not stable or that is unlikely to continue, and that it had "determined potential income from an ADU falls into this category." It added that it recognizes rental income from an ADU "can support homeowner financial stability." In practice, a buyer still has to qualify on the household's own income.

Who can use the program

When the loan is approved, the household's adjusted income can be no higher than the program's moderate-income limit. Federal regulations set that limit as the greatest of 115% of the U.S. median family income, the average of the statewide and state non-metro median family incomes, or 115/80ths of the area's low-income limit for the household's size. The home must be the buyer's principal residence, in an area that counts as rural under section 520 of the Housing Act of 1949. The loan must carry a fixed rate for no more than 30 years, and it may not exceed the lower of two amounts: the appraised market value plus the up-front guarantee fee, or the purchase price plus eligible acquisition costs.

What commenters said

The agency received comments from 28 respondents on its March 31 proposal. Nineteen supported it, saying it would make room for more buyers in rural America. Four backed it but wanted eligibility widened to small home businesses that need commercial features. One respondent, while agreeing the change would widen housing options, questioned whether it would be enforced consistently, what it would mean for policy more broadly and whether the agency had the legal authority to make it; the agency replied that the change falls within its authority under the Housing Act of 1949. The final rule adopts the proposal without changes.

What happens next

The rule takes effect on December 28, 2026. Buyers interested in a home with a rentable unit can ask a lender approved for USDA guaranteed loans whether a particular property, and their household income, qualify. The program's full rules are in 7 CFR part 3555.