Single Family Housing Guaranteed Loan Program-Income Producing Accessory Dwelling Unit (ADU) Provisions

Issuing agencies

Abstract

The Rural Housing Service (RHS or the Agency), a Rural Development (RD) agency of the United States Department of Agriculture (USDA), is amending the Single Family Housing Guaranteed Loan Program (SFHGLP) regulation to permit the financing of single family homes with income producing Accessory Dwelling Units (ADUs) and clarify the eligibility of properties with features designed to accommodate home- based operations using non-commercial real estate features.

Full Text

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<title>Federal Register, Volume 91 Issue 208 (Thursday, October 29, 2026)</title>
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[Federal Register Volume 91, Number 208 (Thursday, October 29, 2026)]
[Rules and Regulations]
[Pages 68025-68028]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22038]


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DEPARTMENT OF AGRICULTURE

Rural Housing Service

7 CFR Part 3555

[Docket No. RHS-26-SFH-0100]


Single Family Housing Guaranteed Loan Program--Income Producing 
Accessory Dwelling Unit (ADU) Provisions

AGENCY: Rural Housing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Housing Service (RHS or the Agency), a Rural 
Development (RD) agency of the United States Department of Agriculture 
(USDA), is amending the Single Family Housing Guaranteed Loan Program 
(SFHGLP) regulation to permit the financing of single family homes with 
income producing Accessory Dwelling Units (ADUs) and clarify the 
eligibility of properties with features designed to accommodate home-
based operations using non-commercial real estate features.

DATES: This final rule is effective December 28, 2026.

FOR FURTHER INFORMATION CONTACT: Stephanie Freeman, Finance & Loan 
Analyst, Single Family Housing Guaranteed Loan Division, Rural 
Development, U.S. Department of Agriculture, STOP 0784, Room 2250, 
South Agriculture Building, 1400 Independence Avenue SW, Washington, DC 
20250-0784. Telephone: (314) 457-6413; or email: 
<a href="/cdn-cgi/l/email-protection#81f2f5e4f1e9e0efe8e4afe7f3e4e4ece0efc1f4f2e5e0afe6eef7"><span class="__cf_email__" data-cfemail="75060110051d141b1c105b1307101018141b35000611145b121a03">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Abbreviations

ADU Accessory Dwelling Unit
CFR Code of Federal Regulations
FNMA Fannie Mae
FHA Federal Housing Administration
FR Federal Register
FHLMC Freddie Mac
HUD Department of Housing and Urban Development
RHS Rural Housing Service
RD Rural Development
Sec.  Section
SEQ. Sequentes
SFHGLP Single Family Housing Guaranteed Loan Program
UMRA Unfunded Mandates Reform Act of 1995
U.S.C. United States Code
USDA U.S. Department of Agriculture
VA The Department of Veterans Affairs

Statutory Authority

    The SFHGLP is authorized by Section 502(h) of the Housing Act of 
1949 (42 U.S.C. 1472(h)), as amended, and implemented by 7 CFR part 
3555.

[[Page 68026]]

Background

    RHS offers programs to develop and enhance housing and critical 
community infrastructure in rural areas. The Agency provides loans, 
grants, and loan guarantees for single and multi-family housing, 
childcare centers, emergency service facilities, hospitals, libraries, 
nursing homes, schools, and housing for agricultural workers, among 
other essential projects. RHS partners with non-profits, tribal 
governments, and state/federal agencies to provide technical assistance 
and supplementary financing to local communities.
    Title V of the Housing Act of 1949 authorizes RHS to provide SFH 
loan guarantees, providing low and moderate income individuals in rural 
areas an opportunity to own decent, safe, and sanitary dwellings and 
related facilities.
    To boost homeownership, the federal government has introduced new 
initiatives providing prospective buyers with greater flexibility to 
finance properties with ADUs. Growing demand for affordable housing and 
limited land availability in many rural communities have made financing 
properties with ADUs increasingly important. Homeowners can create ADUs 
within or attached to the primary dwelling through attic or basement 
conversions, building over existing structures like garages, or 
constructing standalone residential units.
    Homeownership options remain limited for many Americans. The Agency 
recognizes ADUs offer multiple benefits, including expanding a 
community's housing supply by introducing new and innovative housing 
typologies of smaller scale, providing more affordable options for low- 
and moderate-income residents. ADUs also provide borrowers with a means 
to generate additional income. Together, these benefits support the 
broader goal of increasing affordable housing stock and promoting long-
term homeownership stability.

Discussion of Public Comments

    RHS published a proposed rule on March 31, 2026 [91 FR 15914] to 
amend the Single Family Housing Guaranteed Program (SFHGLP) regulation 
at 7 CFR part 3555. RHS received comments from 28 respondents, 
including individuals, interested parties, and associations. One 
comment received was not applicable to the contents of the rule.
    The following summary presents the relevant comments:
    Public Comment: Nineteen respondents supported the proposed rule, 
stating it would accommodate more buyers in rural America.
    Agency's Response: RHS appreciates the support and has determined 
no action is required.
    Public Comment: Four respondents expressed support for the proposed 
rule but recommended expanding eligibility to include small home-based 
operations with commercial real estate features, as well as clarifying 
ADU eligibility and income.
    Agency's Response: RHS appreciates the comments. While the rule 
amends 7 CFR 3555.102(c) to permit properties with home-based 
businesses, 7 CFR 3555.102(b) will continue to prohibit purchasing or 
improving property principally used for income-producing purposes to 
ensure financed properties remain primarily residential. Regarding 
income, 7 CFR 3555.152(a)(3) states lenders may not use income to 
calculate an applicant's ratios if they cannot verify the source, if 
the income is not stable, or if it is unlikely to continue. The Agency 
determined potential income from an ADU falls into this category and 
will not include it in income calculations.
    Public Comment: One respondent agreed the proposal would expand 
housing opportunities in rural America but raised concerns about 
consistent enforcement, broader policy implications, and RHS' statutory 
authority.
    Agency's Response: RHS appreciates the comments. The changes fall 
within the statutory authority granted by the Housing Act of 1949 (42 
U.S.C. 1471 et seq.), as amended. RHS recognizes ADUs can increase 
housing supply, offer additional affordable housing options, and 
support low- and moderate-income households through the receipt of 
potential supplemental income. These benefits support RHS' rationale 
for expanding affordable housing opportunities and promoting long-term 
homeownership stability.
    Public Comment: One respondent expressed support for the proposal 
and recommended addressing ADU income and room rent income in the final 
rule.
    Agency's Response: RHS appreciates the comments and recognizes 
rental income from an ADU can support homeowner financial stability. 
However, 7 CFR 3555.152(a)(3) states lenders may not use income to 
calculate an applicant's ratios if they cannot verify the source, if 
the income is not stable, or if it is unlikely to continue. The Agency 
determined potential income from an ADU falls into this category and 
will not include it in income calculations.
    Public Comment: Two respondents expressed support and offered 
additional suggestions regarding homebuyer education, home-based 
operations, renovation funding at purchase, expanding the ADU 
definition to include non-income producing ADUs, and establishing more 
precise property standards.
    Agency's Response: RHS appreciates these comments and agrees 
supporting home-based operations is important. As clarified through 
this rule, properties accommodating a home-based operation are 
eligible. In addition, properties with non-income producing ADUs will 
remain eligible. Comments regarding homebuyer education and renovation 
funds are outside the scope of this rule.

Summary of Changes to Rule

    This final rule adopts, without modification, the changes published 
in the proposed rule (91 FR 15914; March 31, 2026). The Agency is 
modifying 7 CFR part 3555 as follows:
    (1) Add the definitions of Accessory Dwelling Unit (ADU) and Living 
Unit in 7 CFR 3555.10 to clarify the understanding of these terms.
    (2) Update 7 CFR 3555.102(b) to permit the issuance of a guarantee 
when loan funds are used to finance a property which includes a single 
or multiple income producing ADUs.
    (3) Update 7 CFR 3555.102(c) to permit the issuance of a guarantee 
when loan funds are used to finance a property which accommodates a 
home-based operation.
    (4) Update 7 CFR 3555.201(b)(2) to clarify the eligibility of 
financing sites which include income producing ADUs.

Executive Orders and Statutory Regulatory Review Requirements

Executive Order 12372, Intergovernmental Review of Federal Programs

    This program is not subject to the requirements of Executive Order 
12372, ``Intergovernmental Review of Federal Programs,'' as implemented 
under USDA's regulations.

Executive Order 12866, Regulatory Planning and Review

    This final rule has been determined to be not significant under 
section 3(f) of Executive Order 12866 and was not reviewed by the 
Office of Management and Budget (OMB).

Executive Order 12988, Civil Justice Reform

    This final rule was reviewed under Executive Order 12988. In 
accordance with this rule: (1) unless otherwise specifically provided, 
all State and local laws that conflict with this rule will be 
preempted; (2) no retroactive effect will be given to this rule except 
as

[[Page 68027]]

specifically prescribed in the rule; and (3) administrative proceedings 
of the National Appeals Division of the Department of Agriculture (7 
CFR part 11) must be exhausted before bringing suit in court that 
challenges action taken under this rule.

Executive Order 13132, Federalism

    The policies contained in this final rule do not have any 
substantial direct effect on states, on the relationship between the 
national government and states, or on the distribution of power and 
responsibilities among the various levels of government. This rule does 
not impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    This final rule was reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments''. Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes. Consultation is also 
required for any regulation that preempts tribal law or that imposes 
substantial direct compliance costs on Indian tribal governments and 
that is not required by statute. The Agency has determined that this 
rule does not, to our knowledge, have tribal implications that require 
formal tribal consultation under Executive Order 13175. If a Tribe 
requests consultation, the Rural Housing Service will work with the 
Office of Tribal Relations to ensure meaningful consultation is 
provided where changes, additions and modifications identified herein 
are not expressly mandated by Congress.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for federal agencies to assess the 
effects of their regulatory actions on state, local, and tribal 
governments and on the private sector. Under section 202 of the UMRA, 
the Agency generally must prepare a written statement, including a 
cost-benefit analysis, for proposed and final rules with ``federal 
mandates'' that may result in expenditures to state, local, or tribal 
Governments, in the aggregate, or to the private sector, of $100 
million, or more in any one year. When such a statement is needed for a 
rule, section 205 of the UMRA generally requires the Agency to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective, or least burdensome alternative 
that achieves the objectives of the rule.
    This final rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for state, local, and tribal 
governments, or for the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of the UMRA.

National Environmental Policy Act

    In accordance with the National Environmental Policy Act of 1969, 
Public Law 91-190, this rule was reviewed in accordance with 7 CFR part 
1b (``National Environmental Policy Act''). The Agency has determined 
that (i) this action meets the criteria established in 7 CFR 
1b.4(c)(31); (ii) no extraordinary circumstances exist; and (iii) the 
action is not ``connected'' to other actions with potentially 
significant impacts, is not considered a ``cumulative action''. 
Therefore, the Agency has determined that the action does not have a 
significant effect on the human environment, and therefore neither an 
Environmental Assessment nor an Environmental Impact Statement is 
required.

Regulatory Flexibility Act

    This final rule was reviewed with regard to the requirements of the 
Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has 
determined and certified by signature on this document that this rule 
will not have a significant economic impact on a substantial number of 
small entities since this rulemaking action does not involve a new or 
expanded program, nor does it require any more action on the part of a 
small business than required of a large entity.

Civil Rights Impact Analysis

    RD has reviewed this final rule in accordance with USDA Regulation 
4300-4, Civil Rights Impact Analysis,'' to identify any major civil 
rights impacts the rule might have on program participants on the basis 
of age, race, color, national origin, sex, disability, political 
beliefs, marital status, familial status, parental status, veteran 
status, religion, reprisal and/or resulting from all or a part of an 
individual's income being derived from any public assistance program. 
This final rule is within a Guarantee-based program. Guarantees are not 
covered under Title VI of the Civil Rights Act of 1964, Section 504 of 
the Rehabilitation Act of 1973, and Title IX of the Education 
Amendments Act of 1972, as amended, when the Federal assistance does 
not include insurance or interest credit loans. Lenders must comply 
with other applicable Federal laws, including Equal Employment 
Opportunities, the Equal Credit Opportunity Act, the Fair Housing Act, 
and the Civil Rights Act of 1964. Guaranteed loans that involve the 
construction of or addition to facilities that accommodate the public 
must comply with the Architectural Barriers Act Accessibility Standard. 
The borrower and lender are responsible for ensuring compliance with 
these requirements.

Assistance Listing Number

    The program affected by this final rule is listed in the Assistance 
Listing (AL) Number under number 10.410, Very Low to Moderate Income 
Housing Loans (Section 502 Rural Housing Loans).

Paperwork Reduction Act

    This final rule contains no new reporting or recordkeeping burden 
under OMB Control Number 0575-0179 that would require approval under 
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

E-Government Act Compliance

    Rural Development is committed to the E-Government Act, which 
requires Government agencies in general to provide the public the 
option of submitting information or transacting business electronically 
to the maximum extent possible and to promote the use of the internet 
and other information technologies to provide increased opportunities 
for citizen access to Government information and services, and for 
other purposes.

Non-Discrimination Policy

    In accordance with Federal civil rights laws and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, the USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or reprisal or retaliation for prior

[[Page 68028]]

civil rights activity, in any program or activity conducted or funded 
by USDA (not all bases apply to all programs). Remedies and complaint 
filing deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (e.g., Braille, large print, 
audiotape, American Sign Language, etc.) should contact the State or 
local Agency that administers the program or contact USDA through the 
Telecommunications Relay Service at 711 (voice and TTY). Additionally, 
program information may be made available in languages other than 
English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at How to 
File a Program Discrimination Complaint and at any USDA office or write 
a letter addressed to USDA and provide in the letter all of the 
information requested in the form. To request a copy of the complaint 
form, call (866) 632-9992. Submit your completed form or letter to USDA 
by: (1) mail: U.S. Department of Agriculture, Office of the Assistant 
Secretary for Civil Rights, 1400 Independence Avenue SW, Mail Stop 
9410, Washington, DC 20250-9410; (2) fax: (202) 690-7442; or (3) email: 
<a href="/cdn-cgi/l/email-protection#99e9ebf6feebf8f4b7f0f7edf8f2fcd9eceafdf8b7fef6ef"><span class="__cf_email__" data-cfemail="fc8c8e939b8e9d91d29592889d9799bc898f989dd29b938a">[email&#160;protected]</span></a>.
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects in 7 CFR Part 3555

    Administrative practice and procedure, Business and industry, 
Conflicts of interest, Credit, Environmental impact statements, Fair 
housing, Flood insurance, Grant programs--housing and community 
development, Home improvement, Housing, Loan programs--housing and 
community development, Low and moderate-income housing, Manufactured 
homes, Mortgage insurance, Mortgages, Reporting and recordkeeping 
requirements, Rural areas.

    For the reasons discussed in the preamble, the Agency is amending 7 
CFR part 3555 as follows:

PART 3555--GUARANTEED RURAL HOUSING PROGRAM

0
1. The authority citation for part 3555 continues to read as follows:

    Authority:  5 U.S.C. 301; 42 U.S.C. 1471 et seq.

Subpart A--General

0
2. Amend Sec.  3555.10 by adding in alphabetical order the definitions 
of Accessory Dwelling Unit and Living Unit to read as follows:


Sec.  3555.10   Definitions and abbreviations.

* * * * *
    Accessory Dwelling Unit. A habitable living unit located within or 
detached from a single family dwelling, subordinate in size, has means 
of separate ingress and egress meeting the minimum requirements for a 
living unit, which together constitutes a single interest in real 
estate.
* * * * *
    Living Unit. A unit which contains a continuous and sufficient 
supply of safe and potable water, sanitary facilities and a safe method 
of sewage disposal, heating adequate for healthful and comfortable 
living conditions, domestic hot water, electricity adequate for 
lighting and mechanical equipment, and kitchen facilities adequate for 
the preparation and cooking of food. The unit must contain at least one 
bathroom, or similar space, which includes a water closet, lavatory, 
and bathtub or shower; and kitchen or kitchenette facilities which 
include a sink with potable running water and a stove utility hookup, 
or similar cooking instrument.
* * * * *

Subpart C--Loan Requirements

0
3. Amend Sec.  3555.102 by revising paragraphs (b) and (c) to read as 
follows:


Sec.  3555.102   Loan restrictions.

* * * * *
    (b) Income producing land or buildings. Purchase or improvement of 
land or buildings which are typically used principally for income-
producing purposes. This restriction shall not apply when loan funds 
are used for the financing of an otherwise qualifying property which 
contains, or will contain, a single or multiple accessory dwelling 
units;
    (c) Business or income-producing enterprise. Purchase or the 
construction of buildings which are largely or in part specifically 
designed to accommodate a business or income-producing enterprise. This 
restriction shall not apply when loan funds are used for the financing 
of an otherwise qualifying property with design features which 
accommodate a home-based business or businesses; such as childcare, 
product sales, or craft production; which do not require specific 
commercial real estate features;
* * * * *

Subpart E--Underwriting the Property

0
4. Amend Sec.  3555.201 by revising paragraph (b)(2) to read as 
follows:


Sec.  3555.201   Site requirements.

* * * * *
    (b) * * *
    (2) The site must not include income-producing land or buildings to 
be used principally for income-producing purposes. This limitation 
shall not apply when an otherwise qualifying property contains, or will 
contain, a single or multiple accessory dwelling units. Vacant land 
without eligible residential improvements, or property used primarily 
for agriculture, farming, or commercial enterprise is ineligible for a 
loan guarantee.
* * * * *

George Kelly,
Administrator, Rural Housing Service.
[FR Doc. 2026-22038 Filed 10-28-26; 8:45 am]
BILLING CODE 3410-XV-P


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