A new bill could make it easier to build a tiny home in your backyard—here's what to know

A new bipartisan bill in Congress could significantly expand financing options for California homeowners looking to build accessory dwelling units on their properties.

The SUPPLY Act, introduced by Representatives Sam Liccardo of California and Andrew Garbarino of New York, would authorize government-backed second mortgages specifically for ADU construction, addressing a major financing gap that has limited these projects.

Currently, second mortgages for ADU construction are virtually non-existent because lenders view them as too risky without government backing.

The proposed legislation would change this by allowing the Federal Housing Administration to insure these loans and enabling Fannie Mae and Freddie Mac to purchase and securitize them.

Under the bill, homeowners could qualify for larger loan amounts by including up to 50 percent of the ADU's projected rental income in their application, and lenders could base loans on the property's anticipated post-construction value rather than just current appraisals.

For California property owners, this development could unlock significant opportunities in a state where housing shortages are particularly acute.

ADUs, defined as self-contained living spaces with kitchens, bathrooms and sleeping areas built onto or adjacent to single-family homes, offer dual benefits of increasing housing supply while providing rental income to homeowners facing rising housing costs.

The legislation comes as the United States faces an estimated shortage of roughly 4 million homes nationwide.