Buying a Home with an ADU in Montgomery County, MD

That listing with the "income-producing basement apartment" or the backyard cottage in the photos raises one question smart buyers ask immediately: is it legal?

In Montgomery County, the answer lives in two places — a rental license from the Department of Housing and Community Affairs (DHCA) and building permits from the Department of Permitting Services (DPS). If the seller can't show you both, you're not buying an ADU. You're buying a liability with a kitchenette.

This question is coming up more, not less. Maryland's Accessory Dwelling Units Act of 2025 (HB 1466) took effect October 1, 2025, and requires every county and municipality with zoning authority to have an ADU-authorizing law on the books by October 1, 2026. Montgomery County got there years earlier, which means the rules here are specific, enforced, and checkable — a real advantage for buyers who know what to look for.

Here's how to protect yourself, and how a legitimate ADU can actually help you afford the house.

What Counts as a Legal ADU in Montgomery County

An ADU in Montgomery County is a second, fully independent living space — its own cooking, sleeping, and bathroom facilities — on the same lot as a single-family detached home. It can be a basement apartment, a garage conversion, an addition, or a detached backyard cottage.

The rules that matter when you're buying:

• It must be licensed. Montgomery County requires an ADU rental license through DHCA — and licensing is required even if the unit is never rented, and before it's ever advertised for rent. DHCA inspects the unit as part of licensing.
• It needs building permits. The license doesn't replace permits. The construction that created the unit — kitchen, bathroom, egress, electrical — needed DPS permits, just like any other renovation.
• Size is capped at 1,200 square feet.
• Single-family detached properties only. ADUs aren't permitted on townhouses, condos, or duplexes.
• Separate entrance on the side or rear yard, with the same street address as the main house.
• Owner-occupancy is required. Either the main home or the ADU must be the owner's primary residence. This is the rule that surprises buyers most — you can't buy the property, move elsewhere, and rent out both units.
• No short-term rentals. ADUs can't be listed on Airbnb or similar platforms in Montgomery County.

That owner-occupancy rule reshapes the math for anyone thinking "house hack." Living in the main house and renting the ADU works. Living in the ADU and renting the main house works. Renting both while you live in an apartment downtown doesn't.

How to Verify an ADU Before You Buy

Every legal ADU in Montgomery County has a paper trail. Checking it costs you nothing and takes less than an hour:

1. Ask the seller for the ADU license. A current DHCA rental license for the accessory unit is the single clearest proof of legality. Ask for it with the disclosure documents.
2. Search DPS permit records. The county's eServices permit search (permittingservices.montgomerycountymd.gov) is free and public. Look for permits matching the work that created the unit — a finished basement with a full kitchen and no permit history is a red flag.
3. Read the Maryland seller disclosure form carefully. Known unpermitted work and known code violations are material facts. If the seller is selling as-is with a disclaimer, that makes your own verification more important, not less.
4. Have your inspector look at the unit as a dwelling. Egress, ceiling height, smoke and CO detectors, and electrical capacity are where informal basement units typically fail.

Bethesda, Chevy Chase, and Potomac have a deep supply of 1950s–1980s homes with finished lower levels, and plenty of them have been quietly rented for years without a license. That history matters to you as the buyer, because once you own the property, the compliance problem is yours.

Can ADU Rental Income Help You Qualify for the Mortgage?

This is where a legal ADU earns its keep — and where the licensing question stops being bureaucratic and starts being financial.

Both FHA and Fannie Mae now allow rental income from an ADU on a single-family primary residence to count toward qualifying:

• FHA allows 75% of the lesser of the appraiser's market rent estimate or the actual lease to be added to your effective income, with ADU income capped at 30% of your total qualifying income.
• Fannie Mae treats ADU income under its standard rental income rules, with the appraisal including a comparable rent schedule (Form 1007), and applies a similar 30% cap.

On the ground in the Bethesda area, a licensed one-bedroom basement unit typically rents in the neighborhood of $2,000–$2,400 a month. At 75%, that's roughly $1,500–$1,800 a month of qualifying income — real money against a $700,000–$2,000,000 purchase, and often the difference between stretching and comfortable.

Two caveats. First, appraisers and underwriters distinguish legal, permitted units from informal ones — an unlicensed apartment generally contributes neither appraised value nor qualifying income. Second, your total monthly cost picture should include Montgomery County property taxes and the rest of your closing costs — an ADU helps the income side, but it doesn't shrink the entry cost.

What If the Apartment Isn't Licensed?

You have leverage before closing that you'll never have after. If your verification turns up an unlicensed unit or missing permits, you have four realistic paths:

• Ask the seller to legalize it. Licensing and retroactive permits take time and money, so this works best with a flexible closing timeline.
• Negotiate a credit or price reduction sized to the licensing, inspection, and any remediation costs — the same negotiation you'd run after an inspection.
• Buy it as ordinary finished space. Price the home as if the rental income doesn't exist, because officially, it doesn't.
• Walk away if the numbers only work with income the unit can't legally produce.

What you shouldn't do is pay an income-property premium for an apartment the county doesn't know exists. I've seen listings priced as if an informal basement unit were a licensed ADU — the gap between those two things in Montgomery County is a license, an inspection, and sometimes tens of thousands in retrofit work.

The 2025 state law is pushing every Maryland jurisdiction toward friendlier ADU rules by October 2026, and Montgomery County continues to refine its own program. That's good news for long-term value — legal ADUs are likely to become more common and more valuable, not less.

If you're looking at a home with an ADU — or a basement that's pretending to be one — I'll help you verify the license and permits, price the unit's real value, and structure the offer accordingly. Reach out anytime.

About Pey Behin

Pey Behin is a residential real estate agent serving the Washington, DC metro area, with a focus on Bethesda, Montgomery County, and Northern Virginia. He works with buyers and sellers who want clear strategy, data-driven pricing, and direct guidance throughout the transaction process.