What is an Accessory Dwelling Unit?
Accessory dwelling units (ADUs) are separate units located on an existing single-family residence. The ADU could be in the form of a unit in the backyard, attached to the home, or above a garage. The ADU is considered part of the same main property and cannot be sold separately. ADUs are commonly built in order to provide rental income for the homeowner or to provide housing for a friend or family member.
The recent passage of California Senate Bill 1069 has increased the interest in ADUs as the bill streamlines the process and drastically reduces fees.
Accessory Dwelling Unit Benefits
- ADUs can provide rental income for property owners
- ADUs can be built economically
- ADUs allow homeowners to keep a friend or family member nearby while still maintaining privacy
- Recent legislation in California promotes the development of ADUs and reduces fees
Accessory Dwelling Unit Loan Options
2nd Loan Against Property – For many property owners, it makes sense to keep their existing long-term 1st loan in place and request a 2nd loan for ADU financing. The property owner must have enough equity in the property so the proposed combined loan to value will remain at an acceptable level (80% max).
New 1st Loan Against Property – If the property is currently free and clear, a new 1st loan for ADU construction costs is the simple solution. If the property has a relatively small 1st, it may make sense to refinance the existing 1st with a new 1st which includes the funds for the ADU as the interest rates for a 1st are lower than for a 2nd.
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