Tag: Fannie Mae

Portland Real Estate Appraisal Brief – Monday, December 15, 2025: Fannie Mae Expands ADU and Renovation Eligibility

Fannie Mae’s SEL-2025-10 expands ADU eligibility to up to three per single-unit property and enhances renovation financing—relevant implications for Portland metro appraisals and housing flexibility.

Suburban single-family home with detached guest house (ADU) in a Portland metro area neighborhood, eligible for expanded Fannie Mae financing under December 2025 guidelines.
Detached guest house on a residential property, illustrating expanded ADU eligibility
Via Canva Pro

Fannie Mae issued Selling Guide Announcement SEL-2025-10 on December 10, 2025, introducing updates to renovation lending programs and property eligibility guidelines.

These changes support greater flexibility for home improvements and accessory units in conventional financing.

Renovation Lending Updates

HomeStyle Renovation loans now permit upfront disbursements of up to 50% of total renovation costs at closing for materials, permits, architectural or design fees, and borrower deposits.

For manufactured homes, the previous $50,000 renovation cost cap has been removed; costs may now reach 50% of the as-completed appraised value, aligning with site-built properties.

Limited cash-out refinances under this program can include buying out a co-owner’s interest—such as in inheritance or divorce scenarios—alongside renovations, with no cash back to the borrower.

HomeStyle Refresh, rebranded from HomeStyle Energy and effective for applications received on or after March 31, 2026, finances up to 15% of the as-completed appraised value for cosmetic or functional upgrades, disaster resiliency improvements (e.g., storm barriers or wildfire-resistant roofing), and environmental remediation (lead, asbestos, or mold).

Energy reports are often not required under this streamlined option.

Interior renovation work on a residential property
Via Canva Pro

ADU and Manufactured Housing Expansions

Effective March 31, 2026, and requiring compliance with UAD 3.6, Fannie Mae broadens accessory dwelling unit (ADU) eligibility.

Single-unit properties may now include up to three ADUs if permitted by local zoning.

Two- to three-unit properties qualify for ADUs provided the total unit count does not exceed four.

Standard manufactured homes, including single-wide models, are eligible for one ADU classified as real property.

MH Advantage properties support multiple ADUs, with the overall unit total capped at four.

These expansions also extend eligibility to two- to four-unit and multi-story manufactured homes.

While a small subset of the overall market, the Portland Region sees about 300 sales a year of manufactured homes on owned land. These provisions will materially expand options for manufactured home owners.

In the Portland metro area, where local policies already encourage middle housing and ADUs to address supply constraints, these guidelines complement recent incentives such as the temporary SDC exemption for new housing units.

Appraisal Implications

The updates increase reliance on as-completed appraised value for determining loan-to-value ratios, renovation limits, and eligibility.

Appraisers serving the region may see growing demand for projected-value analyses on properties with multiple ADUs, manufactured home additions, or significant renovations.

Highest-and-best-use conclusions will need to carefully reflect local zoning allowances and market acceptance of these configurations.

Lenders and homeowners exploring alternatives to jumbo financing may find added flexibility here, especially alongside the recently announced higher FHA 2026 loan limits in the Portland metro.

Sources & Further Reading

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How Cars Can Help Explain Fannie Mae’s UAD Quality and Condition Codes

Explanation of Fannie Mae Quality & Condition codes using cars as an analogy.

Real estate agents and homeowners who read an appraisal report prepared on a “1004 UAD” Fannie Mae form will typically look at what is known as the “adjustment grid” and see that the subject property and the comparables used are categorized under quality and condition codes. The codes use a 1-6 scale, where 1 is the best rating and 6 the worst. So, for example, a C1 home would be a home in new condition. 

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The 1004 Fannie Mae form is used to present appraisal reports for most lending transactions. Millions of these documents have been generated over the years. The UAD version of the 1004 became mandatory for most lending reports back in September of 2011. While Fannie Mae has provided an addendum that defines the codes, a lot of confusion regarding the interpretation of the codes stills exists. Therefore, I thought a good way to explain the meaning of the codes would be to use cars. There are ~260 million automobiles in the United States and everyone is familiar with them. So, let’s use cars to illustrate the UAD quality and condition codes. 

A little housekeeping: all analogies gloss over some differences while highlighting areas of similarity. The explanations below are just rules-of-thumb that can help someone quickly parse the various codes. Some explanations may have technical exceptions.

With that out of the way, let’s start with:

Condition:

car

C1: new car.

C2: new car driven off lot or virtually new car (or car restored to almost like new condition).

C3: car a few years old but well maintained (good resale or trade-in value).

C4: car with some miles on it. Some minor dents, some scratches, tire tread is a bit worn; some components may soon need to be replaced. Been around the block, but it works. If you bought it you likely wouldn’t spend a fortune fixing it.

C5: car with some serious issues. Transmission may need to be replaced. Alternator is marginal. Doesn’t always start. Bald tires. Interior is not pleasantly aromatic. Bumper or fender may be damaged, etc. You buy this car and it will likely go straight to the shop and cost a bit to repair. A junkyard would pay you parts and scrap value.

C6: junker. Car has so many problems a mechanic tells you to call a junkyard and put it in its final resting place. The junkyard charges you to take it. This represents a car that probably won’t start at all, would be dangerous to operate if it did start, and whose repair costs may equal or far exceed the actual value of the vehicle. Few people would opt to repair.

Quality:

car-40241_960_720

Q1: extreme high-end luxury car. We’re talking vehicles like a Ferrari LaFerrari, Lamborghini Veneno, or a Mercedes-Benz Maybach Exelero. Highly customized and all aspects of ownership are expensive. If you have to ask “how much?” move on down the scale. These cars are not for you. 😊

Q2: the more “affordable” luxury market. You’ll be in the 6-digits for cars in this class. You’ll see Lamborghinis, Ferraris, Bentleys, and Porsches.

Q3: Mid-higher-end mass market. You got your Lexi, BMWs, Land Rovers, Cadillacs, Audis, and some Teslas squeezing in here. If you drive these cars, assumptions will be made you are in a good socio-economic bracket!

Q4: mid-range mass market. Price is definitely a major factor but not the only concern. Vehicles of this type may have some upgrades. Your Camrys, Accords, Tauruses, and Hyundai Sonatas all live here.

Q5: low-mid range mass market. Price is the overwhelming major concern. Practicality for personal needs a close second. Some of the base models of cars in the Q4 range will show up here with all stock components. You will likely not be bragging about or street racing anything in this bracket.

Q6: very low-end of the car market. The Ford Pinto, were it still around (and not exploding), would feel at home here. A person buys this car for one reason and one reason only: to get from point A to point B. Cars in this range sell new for ~14k. Say hello to the lime-green Ford Fiesta or the Kia Rio.

So, there you have it, a quick-and-dirty interpretation of Fannie Mae’s Q & C codes using automobiles. 

Do you have any other analogies you use or emendations to the list above you’d like to suggest? Please share your thoughts in the comments section!