Refinancing to create an ADU

[James Tiu]

Hello BP! Special thanks to Chris Mason, I am using your template to create an accurate description of what I want.

Your goals and story: My goal is to cash out refinance my duplex. The issues that keep arising when I contact lenders is that the property is currently an investment property, which means 70% LTV vs. 80% LTV owner occupied. Both units are being rented. I plan to create an ADU and live in it with the capital from the cash out refinance. I would like to get 80% LTV on the refinance because I plan to owner occupy property post renovation. 2018 the duplex was appraised for $650k for my refinance from FHA to conventional loan. I imagine it could assess for $700k now. I have $420k balance on the loan. I would be able to cash out $35-$70k on 70% LTV and $650k appraisal.

Type of property: Multi-family: duplex

Location of property: San Diego, CA 92105

Purpose of financing: Refinance to cash out as much equity/capital to build ADU

Type of financing sought: Cash out refinance or Homestyle renovation loan

Current or prior ownership of real estate: I have another duplex with my Father. We finished a renovation and addition and he plans to carry the loan by himself.

Occupancy: Currently an investment property but would like to create an ADU to owner-occupy property.

Value of property at present and/or your offer price: $650k

After repair value: I imagine after building a 1200 square foot ADU the property would appraise close to $1million

Anticipated or actual appraisal issues: no, yes (what?)

Current rents per month: $1700/month and $1800/month

Fair market rents per month: Same as above

Down payment or equity: N/a

Source of down payment funds, if applicable: N/a

Income Source: Hourly W2

Gross monthly income (optional): $12-13k

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: $600-700/month

FICO: 700+

Credit issues: None

Additional details: I would like a cash out refinance of 80% LTV so I can owner occupy the property. This would give me capital of approximately $100k to work with on creating the ADU. I realize I can get a Homestyle renovation loan but I do not want to hire a contractor. I plan to build the ADU as an owner-builder. I can subcontract work that I cannot complete on my own, and that is where the capital would be useful.

Let me know if what I plan to do is feasible through the eyes of a lender. Thank you for taking the time to read and understand my situation.