HUD Mortgagee Letter 2023-17 — Revisions to Rental Income Policies, Property Eligibility, and Appraisal Protocols for Accessory Dwelling Units

hud-ml-2023-17

HUD ML 2023-17 establishes guidelines for the consideration of rental income from Accessory Dwelling Units (ADUs) in underwriting FHA forward mortgages and HECM financial assessments, updates property eligibility for one-unit properties with a single ADU, and establishes appraiser protocols for ADU market rent.

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source:
  type: regulation
  id: hud-ml-2023-17
  authority: HUD Mortgagee Letter 2023-17 — Revisions to Rental Income Policies, Property Eligibility, and Appraisal Protocols for Accessory Dwelling Units
  description: |
    HUD ML 2023-17 establishes guidelines for the consideration of rental
    income from Accessory Dwelling Units (ADUs) in underwriting FHA forward
    mortgages and HECM financial assessments, updates property eligibility for
    one-unit properties with a single ADU, and establishes appraiser protocols
    for ADU market rent.
obligations:
  - id: hud-ml-2023-17-effective-date
    canonical_id: hud-ml-2023-17-effective-date
    section: HUD ML 2023-17 — Effective Date
    description: |
      The provisions of HUD ML 2023-17 are effective immediately for [LENDER]
      underwriting FHA forward mortgages and HECMs.
    type: do
    audit_question: For every FHA forward mortgage or HECM where ADU rental income is used as Effective Income on or after October 16, 2023, can [LENDER] demonstrate that the ML 2023-17 ADU rental-income, property-eligibility, and appraisal-protocol provisions were applied?
    program_review: Does the program account for the applicability trigger — applying the ML 2023-17 ADU rental-income / property-eligibility / appraisal-protocol provisions where ADU rental income is used as Effective Income on or after October 16, 2023?
    file_review: Spot-check files using ADU rental income on/after October 16, 2023; confirm the ML 2023-17 provisions were applied.
    judgment: false
    feeds: []
    workflow_phase: origination
    owner_role: compliance_officer
    secondary_owner_role: default_servicing_analyst
    cadence: continuous
    consequence: ''
    tags:
      - round-b
      - regulator-direct
      - hud-ml
      - fha
      - origination
      - underwriting
      - adu
      - rental-income
      - effective-date
      - promoted
    primary_source:
      tier: 1
      authority: HUD ML 2023-17 — Effective Date
      source_class: hud-ml-pdf
      source_url: https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-17hsgml.pdf
      snapshot_id: dbdab2f23c6d4b96
      fetched_at: '2026-05-22T19:57:58Z'
      content_hash: sha256:517f01d0b9de252afb0957c9d27016bf83213ef2f15bb8408db514e49d43dd33
      paragraph_quote: The provisions of this ML are effective immediately.
      drafter_attestation: |
        Copied verbatim from snapshot dbdab2f23c6d4b96 (content.txt) at
        2026-05-22T20:00Z. Substring is the Effective Date trigger of
        ML 2023-17.
    promoted_at: '2026-05-22T20:56:18+00:00'
    promoted_from: hud-ml-2023-17-roundb-v1.yaml
  - id: hud-ml-2023-17-adu-rental-income-30-percent-cap
    canonical_id: hud-ml-2023-17-adu-rental-income-30-percent-cap
    section: HUD ML 2023-17 — ADU Rental Income Cap (II.A.4.c.xii(I)(2)(c)(i))
    description: |
      Where [LENDER] uses Rental Income from a one-unit property with a single
      Accessory Dwelling Unit (ADU) as Effective Income for qualifying a Borrower
      on an FHA-insured forward mortgage, the amount of ADU Rental Income used as
      Effective Income must not exceed 30 percent of the total monthly Effective
      Income used to qualify the Borrower.
    type: dont
    audit_question: For every FHA forward mortgage where ADU Rental Income was used as Effective Income to qualify the Borrower, can [LENDER] evidence that the ADU Rental Income used did not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower?
    program_review: Do the P&Ps ensure ADU Rental Income used as Effective Income does not exceed 30% of the total monthly Effective Income used to qualify the Borrower?
    file_review: Pull ADU-rental-income files; confirm the ADU income used was <= 30% of total monthly Effective Income.
    judgment: false
    feeds: []
    workflow_phase: origination
    owner_role: compliance_officer
    secondary_owner_role: default_servicing_analyst
    cadence: per-loan
    consequence: ''
    tags:
      - round-b
      - regulator-direct
      - hud-ml
      - fha
      - origination
      - underwriting
      - adu
      - rental-income
      - promoted
    primary_source:
      tier: 1
      authority: HUD ML 2023-17 — II.A.4.c.xii(I)(2)(c)(i)
      source_class: hud-ml-pdf
      source_url: https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-17hsgml.pdf
      snapshot_id: dbdab2f23c6d4b96
      fetched_at: '2026-05-22T19:57:58Z'
      content_hash: sha256:517f01d0b9de252afb0957c9d27016bf83213ef2f15bb8408db514e49d43dd33
      paragraph_quote: |-
        The amount of the Rental Income from an ADU used as Effective 
        Income must not exceed 30 percent of the total monthly Effective 
        Income used to qualify the Borrower.
      drafter_attestation: |
        Copied verbatim from snapshot dbdab2f23c6d4b96 (content.txt) at
        2026-05-22T20:00Z. Substring is the 30 percent ADU rental-income
        cap incorporated into Handbook 4000.1 II.A.4.c.xii(I)(2)(c)(i)
        by ML 2023-17.
    promoted_at: '2026-05-22T20:56:18+00:00'
    promoted_from: hud-ml-2023-17-roundb-v1.yaml
  - id: hud-ml-2023-17-adu-no-commercial-rental
    canonical_id: hud-ml-2023-17-adu-no-commercial-rental
    section: HUD ML 2023-17 — No Commercial Rental Income in Rental Income Calculations (II.A.4.c.xii(I)(2)(a))
    description: |
      [LENDER] must not include any income from commercial space in Rental
      Income calculations for FHA-insured forward mortgages.
    type: dont
    audit_question: For every FHA forward mortgage where Rental Income from the subject Property was used as Effective Income, can [LENDER] demonstrate that no commercial-space income was included in the Rental Income calculation?
    program_review: Do the P&Ps ensure no commercial-space income is included in Rental Income calculations for forward mortgages?
    file_review: Pull files using subject-Property Rental Income; confirm no commercial-space income was included.
    judgment: false
    feeds: []
    workflow_phase: origination
    owner_role: compliance_officer
    secondary_owner_role: default_servicing_analyst
    cadence: per-loan
    consequence: ''
    tags:
      - round-b
      - regulator-direct
      - hud-ml
      - fha
      - origination
      - underwriting
      - rental-income
      - commercial-space
      - promoted
    primary_source:
      tier: 1
      authority: HUD ML 2023-17 — II.A.4.c.xii(I)(2)(a)
      source_class: hud-ml-pdf
      source_url: https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-17hsgml.pdf
      snapshot_id: dbdab2f23c6d4b96
      fetched_at: '2026-05-22T19:57:58Z'
      content_hash: sha256:517f01d0b9de252afb0957c9d27016bf83213ef2f15bb8408db514e49d43dd33
      paragraph_quote: |-
        No income from commercial space may be included in Rental Income 
        calculations.
      drafter_attestation: |
        Copied verbatim from snapshot dbdab2f23c6d4b96 (content.txt) at
        2026-05-22T20:00Z. Substring is the commercial-space exclusion
        rule incorporated into Handbook 4000.1 II.A.4.c.xii(I)(2)(a)
        by ML 2023-17.
    promoted_at: '2026-05-22T20:56:18+00:00'
    promoted_from: hud-ml-2023-17-roundb-v1.yaml
_promotion_history:
  - promoted_at: '2026-05-22T20:56:18+00:00'
    candidate_path: obligations\_remediation\_round_b_drafts\hud-ml-2023-17-roundb-v1.yaml
    candidates_promoted: 3
    candidates_skipped_existing: 0

Verbatim regulatory text (3)

Verbatim provisions from HUD Mortgagee Letter 2023-17 — Revisions to Rental Income Policies, Property Eligibility, and Appraisal Protocols for Accessory Dwelling Units — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.

HUD ML 2023-17 — Effective Date

The provisions of this ML are effective immediately.

Source: HUD ML 2023-17 — Effective Date · source URL · snapshot dbdab2f23c6d4b96

HUD ML 2023-17 — ADU Rental Income Cap (II.A.4.c.xii(I)(2)(c)(i))

The amount of the Rental Income from an ADU used as Effective Income must not exceed 30 percent of the total monthly Effective Income used to qualify the Borrower.

Source: HUD ML 2023-17 — II.A.4.c.xii(I)(2)(c)(i) · source URL · snapshot dbdab2f23c6d4b96

HUD ML 2023-17 — No Commercial Rental Income in Rental Income Calculations (II.A.4.c.xii(I)(2)(a))

No income from commercial space may be included in Rental Income calculations.

Source: HUD ML 2023-17 — II.A.4.c.xii(I)(2)(a) · source URL · snapshot dbdab2f23c6d4b96