California has a housing crisis. Simply put: there are more people that available homes. This isn’t something new, but it has been well documented. I’m not going to bore you with the details and stats. If you want to read about the housing crisis in detail, feel free to Google “California housing crisis”.
If you are a homeowner on a single-unit property, you have an opportunity to bring in some rental income as well as help with the housing crisis by adding an accessory dwelling unit or ADU. I’ll bet you were not aware that you could feel good about earning that extra cheddar. Welcome to the solution!
If you’re considering adding an ADU, or even purchasing a property that has an ADU (or the potential to add an ADU), there are special ADU loans that can help. After all, building and/or purchasing a pre-built ADU can cost $100,000 or more. And if your spouse is anything like mine, you’ll need a big budget just for decorative pillows. Don’t even get me started on that…
Luckily, a relatively new law (AB 68 if you’re curious) helps expedite the process for local government approval for homeowners applying for an ADU and also expands the definition of an ADU to include more options. This bill was signed into law in 2019, and its goal was to help make the process of building an ADU quicker and easier. Jackpot!
Ok, so you now know a bit more about ADUs, how they can help the housing crisis in California, and that you can get a loan for the ADU. So how does the loan work? Actually, it works quite similarly to other home loans. Let me break it down for you.
You can apply for a loan to build an ADU on your property. The base qualifications for this ADU loan follow Fannie Mae’s guidance to create a fair loan for the borrower. One part of this guidance is that the ADU must be on a single-unit property. Duplexes or multi-unit properties would not be able to qualify unfortunately.
However, borrower’s will be able to use the potential rental income generated by the ADU as part of the loan application. This can be a big benefit to the borrower, as it will strengthen the loan application, and therefore make it a bit easier for more folks to qualify. There’s a limited cash-out refinance option as well (the limit is just on the amount a borrower can cash-out).
Finally, the ADU loan comes in common terms: 15 and 30-year options. There are pros and cons to each term length. If a lower monthly payment is best, a 30-year term length can offer lower monthly payments. The con to this choice is that the borrower would be making payment for a longer period of time vs. a 15-year term. However, if a lower interest rate is more appealing, a 15-year term can help accomplish that. The trade off is that the 15-year loan will have a higher monthly payment.
If you’re ready to get started on an ADU loan, give the team at Truss Financial Group a call. They’ve got the expertise to help you get squared away for this special type of loan.
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