Short answer
Usually, if it's legal nonconforming, often called grandfathered. Fannie Mae buys loans on legal nonconforming properties as long as the appraisal reflects any effect on value and marketability. FHA has the appraiser report the home as legal nonconforming, explain why, and say whether it could be legally rebuilt if destroyed. A use that's simply illegal under zoning is a different, harder problem.
What does legal nonconforming mean?
Zoning rules change over time. A home built before a rule existed, such as a house closer to the lot line than today's setback, a home on a smaller lot than now required, or a two-family in a district that now allows only one, may be allowed to stay as it is. Appraisers call that a legal nonconforming use. It's different from an illegal use, which the town never allowed.
How does Fannie Mae treat it?
Fannie Mae's Selling Guide (B4-1.3-04) has the appraiser report the zoning class and whether the use is legal conforming, legal nonconforming, illegal, or in an area with no zoning. Fannie buys loans on legal nonconforming properties if the appraisal reflects any negative effect on value and marketability. It won't buy a loan on a property where land-use rules, such as certain coastal or wetland setback laws, would prevent rebuilding or maintaining the home if it's damaged or destroyed. An accessory unit that zoning doesn't allow at all has its own separate conditions.
How does FHA treat it?
HUD's Handbook 4000.1 requires FHA homes to comply with zoning. If an existing home doesn't meet current zoning but the local zoning authority accepts it, the appraiser reports it as legal nonconforming, explains why, analyzes any effect on value and marketability, and states whether the home could be legally rebuilt if destroyed.
What should I ask before I buy?
- Ask the town's zoning or building office whether the home is legal nonconforming and whether it could be rebuilt as is after a fire or other loss.
- Ask your insurance agent how a rebuild would be covered if current codes or zoning apply.
- For a two-family or a home with an in-law unit, confirm how the town treats the second unit. See ADUs and in-law apartments and buying a multi-family home.
- Check for work done without permits; see unpermitted work.
Sources
- Fannie Mae Selling Guide, B4-1.3-04, Site Section of the Appraisal Report (06/04/2025)
- Fannie Mae Selling Guide, B4-1.3-05, Improvements Section of the Appraisal Report (ADU zoning, 06/04/2025)
- HUD Single Family Housing Policy Handbook 4000.1, Update 18 (August 2026), Zoning
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.