Mortgage Options-Duplex with ADU (Detached Garage Apt)-Charlotte

[Matthew Jones]

Hi All,

I have an awesome 3 family property in Charlotte, NC under contract, but I am now having issues locking down financing, which previously didnt seem to be a problem until some rules interpretations.

The property is a Duplex with a big detached 3 car garage that has an apartment above it. Throughout the whole process, I considered this a triplex or 3 unit property, not knowing that semantics really mattered in the way you describe it the property. I just assumed than when certain lenders would loan money on "2-4 unit properties", the way the units are structured shouldnt matter.

We have been working on an FHA loan for financing, and all was good until the appraiser called the Property a "Duplex with an ADU." Apparently, the FHA will loan on 2-4 unit properties that are all attached, or also loan on a SFR that has an ADU, but not a Duplex with an ADU, which makes no sense at all but it is what it is.

And now my broker is telling me that he is finding no available mortgages for a multi-family property with an ADU, not even conventional mortgages.

I admit that this is a pretty strange property layout (Duplex with detached garage/apartment) but I see no reason why I should be able to finance this baby!

This is blowing my mind, and im not ready to give up fighting for this property and this deal.

Does anyone have any experience with this, or any ideas of ways to be creative and find a mortgage to close the deal?

Obviously, I know I could possibly use a hard money lender or cash, but I would prefer to use traditional lending if possible.

Any help is greatly appreciated!

[Chris Mason]

Hi @Matthew Jones,

A trick that often works out here in California is to remove the kitchen/bathroom and convert it into a storage area or workshop. The least work possible is to remove the oven (so it's not a "kitchen") and remove the toilet (put a sanitary cover over the sewer hole, there now it's not a "bathroom"). Do this prior to the appraisal. Coin toss success rate. Here in the Bay Area our housing stock is often 75 or 100 years old, and Prop 13 means no one ever wants to get permits, so appraisers seem to be fairly forgiving. No idea how it'll play out in your market.

This often comes up with investment properties that have been owned by the same person for several decades. Grandpa put an RV in the back yard and wants to call it a triplex, etc. He got a mortgage just fine on it back in 2006 and doesn't understand why you are having trouble in 2017. The non-coin toss 100% success rate method is for the seller, prior to listing it, to have removed all unpermitted/unzoned/jenky work.