How the Community Can Help Supply Affordable Housing
Mortgage financing available for homes that have or will include Accessory Dwelling Units.

New Federal Housing Administration policies expand financing for Accessory Dwelling Units, supporting the City of Asheville’s housing policy.
An Accessory Dwelling Unit (ADU) is a small, self-contained home that is located on the same lot as a primary dwelling. ADUs may be detached, attached, or internal to the primary dwelling. An ADU may also be located above a garage or in a basement. They can be one story or two stories.
ADUs provide practical housing options for the elderly, empty nesters, young students, and new families, and can provide additional rental income for homeowners. ADUs can help to provide needed housing and do not require the extra expense of purchasing land, can be developed by converting existing structures, and do not usually require the extension of city infrastructure for the additional housing units.
The City of Asheville supports Accessory Dwelling Units (ADUs) as a way to spur the development of more affordable housing options and promote diversity in the types of housing choices available for residents. ADUs are also known as backyard cottages, mother-in-law suites, basement apartments, ancillary units, carriage houses, and garage apartments. These smaller dwelling units provide all the necessary elements of any home, including a kitchen, bathroom, and living/bedroom, but at a smaller scale that is accessory to the primary home.
ADUs are permitted in all residential zoning districts, though are currently only allowed on lots with one single-family home. Standards and regulations for ADUs in Asheville can be viewed on the City’s project page for ADUs at www.ashevillenc.gov. Asheville updated regulations in 2015 to provide more flexibility for ADUs, but many residents have had problems financing ADUs that historically have been outside of traditional bank financing.
In July, the City announced that the Federal Housing Administration (FHA) has released a new policy that expands access to mortgage financing for homes that have or will include ADUs. These rule changes expand the incentives for ADUs by making them easier to finance.
According to the FHA, the new policies will:
- Allow 75% of the estimated ADU rental income for some borrowers to qualify for an FHA-insured mortgage on a property with an existing ADU. This additional income flexibility will help to increase access to homes with ADUs for homebuyers with limited incomes, allowing them to benefit from the wealth-building opportunity of a property with an ADU.
- Use 50% of the estimated rental income, for some borrowers, from a new ADU the borrower plans to attach to an existing structure, such as in a garage or basement conversion, to qualify for a mortgage under FHA’s Standard 203(k) Rehabilitation Mortgage Insurance Program. This will enable more homeowners with limited incomes to build ADUs, helping them sustain homeownership and expanding the production of ADUs as rental housing.
- Include ADU-specific appraisal requirements for appraisers to clearly identify, analyze, and report on ADU characteristics and the estimated rent the ADU can be expected to generate. The guidance provided in the Mortgagee Letter will assist appraisers to more accurately determine the market value of a property with an ADU and also will help advance the maturation of ADU valuation, thereby increasing access to ADU financing as more cities and states remove zoning barriers.
- Add ADUs to the types of improvements that can be financed under FHA’s mortgages for new construction. This allows new homes to be built with ADUs from the ground up, an important source of ADU production in addition to rehabilitating existing structures.
Can I Build One?
If you live in a residential zoning district, one ADU is allowed on each lot that contains or will contain a single-family home. Be sure there are no private restrictive covenants that disallow ADUs on your parcel, which may be recorded with the deed. The issuance of a permit does not eliminate the responsibility of a property owner to comply with applicable private covenant restrictions.
What is the Process?
Step 1 – Review the Development Services Department’s ADU Guide and contact the Planner of the Day at [email protected] or (828) 259-5450, with questions; or in-person at 161 S. Charlotte St. (M-F from 8:30 a.m. until 5 p.m.; closed public holidays). Meet with DSD staff to discuss additional technical requirements.
Step 2 – Submit an application along with building and site plans to the Development Services Department (DSD) via the Development Portal, or in person at the Permit Application Center (DSD PAC) at 161 S. Charlotte St. City staff will review your application and plans for compliance with ADU applicable standards and provide comments for revision. Revise and resubmit your application and plans through the Development Portal.
Step 3 – Once plans are approved and a permit is issued, you may begin work. Regular inspections will be required as you complete the various phases of your project.
To learn more about the City of Asheville’s ADU Project, visit www.ashevillenc.gov and search for Accessory Dwelling Units supporting the City of Asheville’s housing policy.