Long Island Banks Now Count Rental Income from Accessory Units for Mortgage Approval

Long Island lenders are revolutionizing home financing by counting projected rental income from accessory dwelling units toward mortgage qualification, fundamentally changing how buyers approach the housing market.

Banks now treat properties with basement apartments and mother-daughter setups as income-generating assets rather than liabilities, according to Perry Pappas, team leader of The Perry Pappas Team with Coldwell Banker American Homes. This shift in underwriting standards allows buyers to factor future rental income into their borrowing capacity.

“They’re treating them as multifamily properties, looking at these homes that have an accessory apartment and giving qualifying income to that forecasted rent roll,” Pappas explains. The change expands purchasing power for buyers navigating Long Island’s tight inventory and rising prices. As detailed in our previous coverage of strategic underpricing tactics, the competitive dynamics of the Long Island market continue to evolve in unexpected ways.

The policy shift has created a new category of buyer behavior. Pappas reports that buyers now make offers contingent on installing kitchens or bringing appliances specifically to meet lender requirements for completed accessory units. In several recent deals, buyers offered to install kitchens or supply appliances for downstairs units to ensure banks recognize the spaces as finished accessory dwellings.

This represents a fundamental change in how buyers evaluate properties. Rather than viewing homes solely as single-family residences, buyers now assess them as potential income properties that can offset mortgage payments. The willingness to invest in completing units as part of the purchase indicates a shift in how buyers calculate long-term value and affordability compared to eighteen months ago.

For sellers, the trend creates opportunities to market unfinished basements or non-conforming accessory spaces as conversion candidates. Properties once viewed as requiring remediation to remove illegal apartments can now be marketed for income potential, provided they meet lender requirements for completed units.

The change particularly benefits investors targeting Long Island’s residential market. Properties with existing accessory units or convertible spaces now carry increased appeal, as buyers can qualify for larger mortgages based on anticipated rental income. The policy change lowers entry barriers for first-time buyers while creating opportunities for investors pursuing multifamily conversions.

Pappas says his team now prioritizes this trend in their listing strategy. “This is definitely something we’re leaning into for the 2026 market because it’s getting a lot more popular,” he says. By emphasizing a property’s accessory unit potential, the team aims to make listings more competitive and increase buyer financial flexibility.

The trend addresses Long Island’s ongoing affordability challenges by allowing buyers to offset mortgage payments with rental income. This expands the pool of qualified buyers to include many who might not qualify under traditional lending standards.

Pappas characterizes this as the most significant market change in recent memory. “That’s been by far the biggest change overall in the last eighteen months,” he says.

The Perry Pappas Team, which closed nearly $60 million in sales last year, has begun including potential accessory dwelling units in both listing presentations and buyer consultations. The team works primarily with first-time buyers, who represent 80 to 90 percent of their clientele.

The underwriting shift affects both property valuation and marketability for homes with existing or easily convertible spaces. As lenders recognize the income potential of accessory units, buyers gain additional leverage in a competitive market while sellers can highlight previously overlooked features as valuable assets.

This development reflects broader changes in how the real estate industry approaches alternative housing arrangements, potentially reshaping Long Island’s residential landscape as both buyers and sellers adapt to new financing possibilities.