Legal Non-Conforming MultiUnit - Financing Challenges

[Alex Smith]

Hi all,

I've been a lurker on the forums for some time - I finally made the plunge and made an offer and I am under contract on a triplex in a coastal city in Florida!  

This is a very unique property, and I have some challenges working out the financing. First, my wife and I are working remotely full time, so income and available cash is not an issue with financing.  The property is a 3-bed/3-bath single family home, with a detached duplex (1 bd/1bath ea) in the back.   My wife and I are planning on living in the home, and renting out the back units.  

We are going with a conventional, 20% down 30/yr fixed mortgage.  (I am finding some lenders require 20% down for Triplexes, and some require 25%).  

The issue is the property is a legal non-conforming triplex.  City zoning only allows for two units and the city has rejected the rebuild letter.  Therefore, the lender underwriters are not approving the mortgage because they can't be guaranteed the collateral in the event of a total loss.  The property could only be rebuilt as a two unit.  

It seems our options are: 

1. Remove one of the functional kitchens from one of the duplex units, get the property reappraised as a duplex and hope the second appraisal does not drop the value too significantly from the contract price. 

2. Find a lender who will underwrite a loan knowing the legal non-conformance status.  (We would need the loan downpayment to remain 20% for personal financial reasons). 

The property was sold in 2018, and the buyers used a conventional loan then - so I have to think my lender's underwriters are on the conservative side.  Will I have better luck with other lenders?  Any insight would be greatly appreciated!