Financing an ADU is Easier than You Think
If you are purchasing a new home or if you currently own your home, you can, in most cases, finance the cost of your ADU into your mortgage. Here is an outline of how financing an ADU works:
- Refinance your current mortgage and put the cost of the ADU into your new loan with a Fannie Mae Homestyle Renovation loan
- Purchase a new home and add an ADU
- Appraisal is “subject to repair” with the end value of the ADU addition factoring into the new value of your home. Borrow up to 95% of the finished value!
- Fannie Mae guidelines must be followed for the loan
i.e. credit, income, assets are all analyzed just like a regular loan.
Loan amounts up to $684,250 in the 6-county metro area; Loan amounts can be higher, up to $875,000, depending on if it’s considered a one unit with an accessory unit or a two-unit property if it meets the criteria set forth by Fannie Mae.
Example:
You owe $500,000 on your current home. You are putting in a new garage on the back of the property
with a 600 square foot ADU on the top. Cost is $150,000. We add the $150k to your current mortgage
and refinance it in to one new loan.
If you have any questions, please click here to visit my contact page. I have done hundreds of Fannie Mae Homestyle Loans and I’d appreciate the opportunity to answer your questions.
More Helpful ADU Information
An ADU is typically an additional living area independent of the primary dwelling that may have been added to, created within, or detached from a primary one-unit dwelling. The ADU must provide for living, sleeping, cooking, and bathroom facilities and be on the same parcel as the primary one-unit dwelling.
The following describes the requirements for classifying an ADU: Only one ADU is permitted on the parcel of the primary one-unit dwelling. ADUs are not permitted with a two- to four-unit dwelling.
The ADU must be subordinate in size to the primary dwelling and have the following separate features from the primary dwelling: means of ingress/egress, kitchen, sleeping area, bathing area, and bathroom facilities.
The ADU may, but is not required to, include access to the primary dwelling. However, it is not considered an ADU if it can only be accessed through the primary dwelling or the area is open to the primary dwelling with no expectation of privacy.
The kitchen must, at a minimum, contain the following: cabinets; a countertop; a sink with running water; and a stove or stove hookup (hotplates, microwaves, or toaster ovens are not acceptable stove substitutes). An independent second kitchen by itself does not constitute an ADU.
The removal of a stove does not change the ADU classification. A borrower must qualify for the mortgage without considering any rental income from the ADU.
The construction method of an ADU can be on site or factory-built (AKA modular). If an ADU is present, the primary dwelling must be site-built or a modular home.
Examples of ADUs include, (but are not limited to): a living area over a garage, a living area in a basement, a small addition to the primary dwelling.
For specific information for the city of Denver, Click here
