ADU’s- Accessory Dwelling Units

ADU Options





I hope you had a great weekend and for many of you it was a 4 day weekend so congrats!  Sadly, next year the 4th of July falls on a Saturday so you will have some decisions to make.

We have been running into a lot of properties with Accessory Dwelling Units (ADU’s) lately.  These units are becoming more and more common in many areas and we have seen a good amount of these pop up in the San Fernando Valley.  I will not talk about the legalities of these units and how renting can be an issue if you are not careful, but I will let you know how we can finance them and what we are looking for when it comes to financing ADU’s.

An ADU is an additional living area independent of the primary dwelling unit and it includes a fully functioning kitchen and bathroom.  It could be a garage conversion, or something with a separate entrance to the main house, but totally cut off from the main house.   These are single family residences with an additional unit, and they are zoned for single family homes not multi-unit properties.

The loan on these properties would be your typical loan for a single family dwelling, but the appraiser must provide a description of the accessory unit and analyze any effect it has on the marketability of the property.

If the property contains an ADU then the property would be eligible for financing under the following conditions:

  1. The property is 1 unit
  2. The appraisal report demonstrates that the improvements are typical for market through analysis of at least one comparable sale with the same use.  Yes, that means that we need a comparable sale with an ADU!  You can’t just randomly add $50K for an ADU!
  3. The borrower must qualify for the mortgage without considering any rent from the ADU.

Keep in mind that if the ADU is unpermitted then you will not get any value for the ADU, but if the work is done in a workmanlike manner then financing should not be affected.  Please also understand that an ADU does not add $600,000.00 to the value of a property.  $25,000- $50,000 – $75,000 depending on the area and the comps in the area!

Interest rates are at very low levels and they are about 1% better than they were a year ago at this time!  Here are rates as of this moment:

  • 30-year fixed conventional 1st Mortgage with 25% down – 3.750% (3.930 APR). Loan amounts up to $484,350.00 = $2277.59
  • 15-year fixed conventional 1st Mortgage with 25% – 3.250% (3.350 APR). Loan amounts up to $484,350.00 = $3403.38
  • 5/1 ARM 1st Mortgage –  25% down – Fixed for 5 years and then becomes variable – 3.250% – (3.2605 APR) Loan amounts up to $3,000,000.00 = $13,056.19
  • 7/1 ARM 1st Mortgage – 25% Fixed for 7 years and then becomes variable – 3.375% – (3.385 APR) Loan amounts up to $3,000,000.00 = $13,262.89
  • 10/1 ARM 1st Mortgage – 25% Fixed for 10 years and then becomes variable – 3.500% – (3.510 APR) Loan amounts up to $3,000.,000.00 = $13,471.34
  • 30-year fixed 1st Mortgage FHA loan 3.500% down – 3.375% (4.797 APR). Loan amounts up to $484,350.00 = $2178.77 + $349.08 PMI = $2562.09
  • 30-year fixed 1st Mortgage VA loan 0% – 3.375% (3.555 APR). Loan amounts up to $484,350.00 = $2141.29
  • 30 Year Fixed rate 1st Mortgage Jumbo Loan 25% down – 4.250% (4.264 APR).  loan amounts up to $3,000,000.00 =14,758.20

All of the above are based on a 740 credit score with 25% down on conventional and Jumbo Loans.  Rates are subject to change without notice, your mileage may vary!

I will be in the office all week as my family is on vacation again (Calgary Stampede) and someone has to pay for it.  Actually, my oldest daughter Emily is here with me helping with the dogs, but I will be working around the clock all week!  My cell is 661-714-6258 and my office line is 661-260-2970.  I hope you have a great week and we will look forward to hearing from you!