Could rental income from an ADU or a new SB9 unit help you qualify for a home in Santa Barbara? You are not alone if you are wondering how lenders actually treat this income. The good news is that it can help, but only when the unit is legal, the rent is documented, and you meet specific loan rules. This guide breaks down what lenders allow, how local Santa Barbara permitting affects timing, and the steps to take so your numbers work. Let’s dive in.
What lenders allow for ADU income
Lenders will consider rental income from a legally permitted ADU on an owner-occupied, one-unit home. Under conventional loans, Fannie Mae caps qualifying ADU rent at 30% of your total qualifying income and limits income to one ADU per property. You also need proper documentation such as tax returns, leases, and an appraisal rent schedule when required. You can review the rules in Fannie Mae’s guide on rental income and ADUs for the full picture (Fannie Mae rental income guidelines).
How much can you count?
- Fannie Mae allows ADU rent up to 30% of your qualifying income.
- You can only use income from one ADU on a one-unit primary residence.
- Lender overlays vary, so confirm your lender’s cap early.
Documents you will need
- If the ADU is already rented, lenders often ask for a signed lease and tax returns showing Schedule E rental income.
- If the unit is newly rented or has no tax history, lenders typically rely on an appraisal and a Single-Family Comparable Rent Schedule, known as Form 1007 (or Form 1025 for 2–4 units) to document market rent (Fannie Mae rental income guidelines).
FHA, Freddie Mac, and other options
- FHA now allows some ADU income for qualification, often with added conditions such as reserve requirements. See the latest policy summaries for details (FHA ADU income update).
- Freddie Mac also supports ADU scenarios with documentation similar to Fannie Mae (Freddie Mac ADU guidance).
- Portfolio or DSCR lenders can be more flexible but usually at higher rates and with product-specific documentation.
SB9 income basics in Santa Barbara
California’s SB9 allows certain single-family lots to add a second unit or split the lot, which can create new long-term rental opportunities. If you pursue an SB9 lot split, you must sign an owner-occupancy affidavit stating you will live in one of the homes for at least three years, and SB9 projects are intended for long-term housing, not short stays (SB9 state law). Local rules and objective standards in Santa Barbara define where and how SB9 can be used, including fire safety and design standards, which affect feasibility and timing (City SB9 objective standards update).
What underwriters look for with SB9 units
- Most lenders want completed, permitted units before counting income.
- If there is no rental history, an appraisal with a market rent schedule may be required.
- Expect lender overlays and potential reserve requirements, especially if you are new to managing rentals.
Local permitting checkpoints that affect timing
The City of Santa Barbara launched a Preapproved ADU Program to speed up permitting for detached ADUs, which can shorten the path to a rentable, financeable unit (City preapproved ADU program). Parcels in the coastal zone may require a Coastal Development Permit, which often adds review time and conditions (California Coastal Commission SB 1077 ADU info). If you are considering Lower State, the Riviera, or coastal neighborhoods in the County, confirm jurisdiction and coastal status early, since city and county rules differ.
Avoid short-term rental assumptions
Lenders typically do not accept short-term rental bookings as qualifying income, and Santa Barbara restricts short-term rentals in many residential areas. The City also enforces licensing and transient occupancy tax rules. Do not plan on STR income for underwriting in most neighborhoods (Santa Barbara STR enforcement overview; Fannie Mae rental income guidelines).
Step-by-step: use ADU or SB9 income to qualify
- Confirm legal status. Make sure the ADU or SB9 unit is fully permitted and eligible for long-term rental. If you are in the coastal zone, verify whether a Coastal Development Permit is required (City preapproved ADU program).
- Talk to lenders early. Ask if they accept ADU income, what cap they apply, and whether they will use an appraisal rent schedule if you have no lease yet (Fannie Mae rental income guidelines).
- Gather paperwork. Prepare leases, tax returns with Schedule E, and permits. Expect an appraisal with Form 1007 or 1025 if there is no rent history.
- Plan for reserves and experience. Some products require reserves or proof of property management experience.
- Align timing. If coastal or SB9 approvals are needed, build that timeline into your financing plan.
Two quick scenarios
I already have a rented ADU
- Provide the signed lease and recent tax returns showing Schedule E income.
- Expect the lender to credit a portion of that rent, subject to the 30% cap and their overlays.
- Ensure permits and occupancy documents are complete and accessible.
I plan to build an ADU or SB9 duplex
- Get pre-approval and confirm whether the lender will use an appraisal rent schedule for market rent.
- Budget for completion and potential lease-up before full income is counted.
- Use Santa Barbara’s preapproved ADU resources to shorten permitting where possible, and confirm SB9 feasibility under local standards (City preapproved ADU program; City SB9 objective standards update).
Final thoughts
Using ADU or SB9 income can be a smart way to strengthen your loan file in Santa Barbara, but success comes down to legality, documentation, and timing. Start with a clear plan that aligns permitting with underwriting so you are not leaving money on the table. If you want a local, strategic perspective on properties from Lower State to Montecito that make this path realistic, connect with Sandy Lipowski for a private consultation.
FAQs
How do lenders treat ADU rent on a primary home?
- Conventional lenders may allow ADU rent on a one-unit primary residence, typically up to 30% of qualifying income with required documentation (Fannie Mae rental income guidelines).
Can I count projected rent if the unit is not leased yet?
- Sometimes an appraisal with a market rent schedule can be used when there is no rent history, but many lenders want the unit completed and often leased before counting full income (Fannie Mae rental income guidelines).
What is the SB9 owner-occupancy rule for lot splits?
- If you do an SB9 lot split, you must sign an affidavit to live in one of the homes as your principal residence for at least three years (SB9 state law).
Do Santa Barbara STRs count as qualifying income?
- Generally no, since the City restricts short-term rentals in many areas and lenders often treat STR income as ineligible or unstable (Santa Barbara STR enforcement overview).
What local programs can speed an ADU in Santa Barbara?
- The City’s Preapproved ADU Program can reduce design review time for detached ADUs, helping you bring legal rental income online faster (City preapproved ADU program).
