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Home purchase loan and Home style for ADU build
Hi everyone,
I am planning on purchasing another home to househack and I would like to build an ADU ASAP after closing on the house. I've read that with the homestyle loan, an ADU can be built and the funds from the homestyle loan will be added on top of the home purchase loan.
The ADU will offset a big chunk of the mortgage.
Anyone go this route?
Does anyone know or any lenders that offer this?
thanks!
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
Quote from @David Maldonado:
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
>ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value
Can you DM me some comps in a single family zoned areas that reflect this? If your market is showing SF zoned comps for a ADU addition that match or exceed hands off cost of adding a ground up single ADU, your market would be rare if not unique for CA.
Note in San Jose you can split an ADU lot. Depending on cost and effort to do this, it may present an opportunity in San Jose. Time will provide more clarity.
Good luck
Quote from @David Maldonado:IF No comparable sales meet your value, no loan available as is over 100% loan to value financing. Orcutt one sale - sold for $4000 more than similar square foot sfr, The Groves and Vista Del Sol no SFR sales with an ADU exist in past 90 days.
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
The loan programs you are reading about are PURCHASE loans with 10% down not refinance ones which reduces the loan to value even further down.
Minimum ADU cost including installation for a tiny one is $110000 and a 800 square foot one is $165000. The value the ADU adds to appraisal might be $10000 more than an SFR.
It will be difficult for you to search sold SFR with ADU as automated valuations do not yet even include them, they show as SFR.
(SFR= single family)
There are modular kit homes that finance as a second trust deed, this is probably your ONLY choice if you only have 10% down. BUT you need to qualify with the first PITI and second being a 15 year amortization.
The market does not recognize ADU as adding much appraisal value, yet.
Quote from @Caroline Gerardo:I appreciate all of the information.
Quote from @David Maldonado:IF No comparable sales meet your value, no loan available as is over 100% loan to value financing. Orcutt one sale - sold for $4000 more than similar square foot sfr, The Groves and Vista Del Sol no SFR sales with an ADU exist in past 90 days.
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
The loan programs you are reading about are PURCHASE loans with 10% down not refinance ones which reduces the loan to value even further down.
Minimum ADU cost including installation for a tiny one is $110000 and a 800 square foot one is $165000. The value the ADU adds to appraisal might be $10000 more than an SFR.
It will be difficult for you to search sold SFR with ADU as automated valuations do not yet even include them, they show as SFR.
(SFR= single family)
There are modular kit homes that finance as a second trust deed, this is probably your ONLY choice if you only have 10% down. BUT you need to qualify with the first PITI and second being a 15 year amortization.
The market does not recognize ADU as adding much appraisal value, yet.
My current home has a JADU and an ADU. Homes in my neighborhood average at $650k, a similar home, with both a JADU and ADU sold for $1,025,000 i neighborhood.
I believe there is another up for sale right now for about the same price in Santa maria. But I know more comps are probably needed
(assuming it sells).
ADUs are definitely expensive to build. That's where I save a lot of money on the build. I'm a contractor, I'd be self performing most of the work.
I wonder when more comps will come up for the ADU values.Most people in my area build ADUs for extended family, so I don't see it happening anytime soon.
Quote from @David Maldonado:
Quote from @Caroline Gerardo:I appreciate all of the information.
Quote from @David Maldonado:IF No comparable sales meet your value, no loan available as is over 100% loan to value financing. Orcutt one sale - sold for $4000 more than similar square foot sfr, The Groves and Vista Del Sol no SFR sales with an ADU exist in past 90 days.
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
The loan programs you are reading about are PURCHASE loans with 10% down not refinance ones which reduces the loan to value even further down.
Minimum ADU cost including installation for a tiny one is $110000 and a 800 square foot one is $165000. The value the ADU adds to appraisal might be $10000 more than an SFR.
It will be difficult for you to search sold SFR with ADU as automated valuations do not yet even include them, they show as SFR.
(SFR= single family)
There are modular kit homes that finance as a second trust deed, this is probably your ONLY choice if you only have 10% down. BUT you need to qualify with the first PITI and second being a 15 year amortization.
The market does not recognize ADU as adding much appraisal value, yet.
My current home has a JADU and an ADU. Homes in my neighborhood average at $650k, a similar home, with both a JADU and ADU sold for $1,025,000 i neighborhood.
I believe there is another up for sale right now for about the same price in Santa maria. But I know more comps are probably needed
(assuming it sells).
ADUs are definitely expensive to build. That's where I save a lot of money on the build. I'm a contractor, I'd be self performing most of the work.I wonder when more comps will come up for the ADU values.Most people in my area build ADUs for extended family, so I don't see it happening anytime soon.
Can you post the address of this property that sold for over $1m with ADU with a value of $650k without the ADU? In general JADU reduce value and many realtors recommend their removal at time of sale. ADUs in SF zones areas add far less than the hands off cost to add the ADU. A valuation of $375k would be extraordinary.
If you want an ADU, best is to purchase a property with existing ADU. You will likely pay less than half the addition cost, be able to obtain convention f/f financing, will not have to do the work, will not have to deal with a construction zone, will not have cash outlay months before first associated income, etc.
Good luck
$1025000 house vs $650000 house are in same track, same lot size, main SFR same square footage? Hard to imagine a junior tiny adu was given value in a sale- an appraiser might comp it to a she shed. Since the number of sales is so low and owners hold on as long as they can it will take a major market shift to start seeing comparables with the ADU variable.
Quote from @Dan H.:
Quote from @David Maldonado:
Quote from @Caroline Gerardo:I appreciate all of the information.
Quote from @David Maldonado:IF No comparable sales meet your value, no loan available as is over 100% loan to value financing. Orcutt one sale - sold for $4000 more than similar square foot sfr, The Groves and Vista Del Sol no SFR sales with an ADU exist in past 90 days.
Quote from @Caroline Gerardo:ADUs in my area add a decent amount of value to a property, but I understand. What would happen in a situation where if the adu doesn't add the necessary value?
Homestyle/Choice/reno loans are first trust deeds not a piggyback or second after closing. This means you close your purchase and pray the appraisal with the proposed ADU has the value you think. The problem is a house+ ADU does not appraise in comparable sales to a duplex or two houses. You need to find single family with ADU that sold in your planned purchase tract that appraises high enough to make this work. Problem is there will be few or no such sales.
How much down payment are you planning?
As for the down payment, most likely the minimum. I believe it's 5% down for owner occupied.
The loan programs you are reading about are PURCHASE loans with 10% down not refinance ones which reduces the loan to value even further down.
Minimum ADU cost including installation for a tiny one is $110000 and a 800 square foot one is $165000. The value the ADU adds to appraisal might be $10000 more than an SFR.
It will be difficult for you to search sold SFR with ADU as automated valuations do not yet even include them, they show as SFR.
(SFR= single family)
There are modular kit homes that finance as a second trust deed, this is probably your ONLY choice if you only have 10% down. BUT you need to qualify with the first PITI and second being a 15 year amortization.
The market does not recognize ADU as adding much appraisal value, yet.
My current home has a JADU and an ADU. Homes in my neighborhood average at $650k, a similar home, with both a JADU and ADU sold for $1,025,000 i neighborhood.
I believe there is another up for sale right now for about the same price in Santa maria. But I know more comps are probably needed
(assuming it sells).
ADUs are definitely expensive to build. That's where I save a lot of money on the build. I'm a contractor, I'd be self performing most of the work.I wonder when more comps will come up for the ADU values.Most people in my area build ADUs for extended family, so I don't see it happening anytime soon.
Can you post the address of this property that sold for over $1m with ADU with a value of $650k without the ADU? In general JADU reduce value and many realtors recommend their removal at time of sale. ADUs in SF zones areas add far less than the hands off cost to add the ADU. A valuation of $375k would be extraordinary.
If you want an ADU, best is to purchase a property with existing ADU. You will likely pay less than half the addition cost, be able to obtain convention f/f financing, will not have to do the work, will not have to deal with a construction zone, will not have cash outlay months before first associated income, etc.
Good luck
Hi Dan,
1002 Dejoy St Santa Maria, CA 93458
503 E Monroe St, Santa Maria, CA 93454
the first one sold a few years ago and the 2nd one is for sale.
I would have to search the comps for the properties with 1 adu. You'd have to play with the search engine on zillow to find them.
As for the 650k price, that's specifically for my neighborhood. The avergae home in Santa Maria is $620k.
Hey @David Maldonado
Longtime SoCal appraiser/broker/investor here. So, the Dejoy sale is 2 years old, as you said, and it has 2 ADU's (I assume ADU + JADU), or has a total of 3 units. And the Monroe house looks to be similar, with 3 units. So, neither of those are good comps for your proposed SFR + ADU. So, if an appraiser decided to use those, they should adjust downward for the 3rd unit and calculate a time trend adjustment for the older sale. But, more likely, they would probably just not use those, due to the 3rd units. Either way, they would adjust lower than the sale/list prices.
I did a quick and dirty mls search for that area (around Main St and North) over the past 12 months and found 2 active listings, 2 pendings, and 8 solds. I only found 1 comp with 1 ADU, 821 E Hermosa St, sold 8/2/23 for $749k and 1 pending 822 E Fesler St listed at $769k.
That suggests a huge disparity between those properties with 1 ADU and 2 ADU's. While that doesn't necessarily mean the 3rd unit is worth $300k+ more, it does point to much more market analysis should be done. But, unfortunately, most people ordering appraisals these days (typically AMCs - appraisal management companies) don't pay enough for good appraisers to accept their assignments, and therefore, many appraisal reports lack good results. So, they are more likely to rely on the easy data they find, without delving into the market data more to verify it. That said, the market analysis may still show a large appeal and therefore, price disparity for an sfr + 2 adu's as compared to an sfr + adu. That is the "fun" part of the adu market, until there is enough data to adequately reflect the market's reaction.
When I expand the search results to the Orcutt area, there is a sale of an sfr + adu, 1498 Claret Ln, sold for $1,165,000 on 3/7/24.
And that's all there is using the mls with the newish search field for ADUs. Another option for appraisers is potentially find any sfr sales with guest houses and/or duplex properties and analyze and adjust accordingly. They might also need to spend a lot more time diving further into the mls listings to search through the comments to see if any adu properties are hiding.
Anyway, I'm happy to discuss specifics if you want. Feel free to dm me.