ADU Financing - Airbnb Income Not Accepted in Application

[Justin Hinckley]

Hey folks, I actually had the idea to post here because of the latest episode of the BP podcast, about Accessory Dwelling Units. I'm in the process of building a detached ADU on my property in order to Airbnb it and having difficulty securing financing, due to the unique situation of my life at the moment. I'm here looking for creative ideas or feedback of things I may be overlooking to secure the financing. We're getting down to the wire to start breaking ground on construction and I'm figuring out how to make this happen without significant delay.

The ADU is on my wife and I's primary residence property, which we currently have a mortgage on. This is causing hard money and investment lenders to not lend on the project because it is on the primary residence property. An issue I'm having with banks is I do not want to refi my current mortgage because I just refinanced several months ago and have a really low rate. Refi'ing my entire home loan and doubling or tripling my rate does not seem like the smart play, given the size of the loan compared to my current mortgage. I have equity in the home, but not enough to fund the ADU through a HELOC or home equity loan. I have considered getting an appraisal, because thus far I am going off the Zillow Zestimate, which tells me I have about 90k in equity but I don't know how accurate that is. I don't expect it to be considerably higher than what Zillow says.

I am recently released from Active Duty in the Marine Corps, and do not currently have a W2 job (a couple of 1099 jobs currently or happening in the near future). My wife is also a 1099 contractor with several of her own businesses. Finally, we run an Airbnb out of our primary residence, and have been doing it for 13 months. Basically, the issue I'm having here is that the only income most lenders and banks will count is my wife's income because she has over 2 years of history in her 1099 job. My income is way too new (and not W2) and lenders are all requiring at least 2 years of Airbnb history. This is causing our DTI percentage to be too high for hard money lenders and banks to be willing to loan.

The above facts have me applying for W2 employment right now to alleviate this issue, but that will be 30 to 60 days before solving the problem, minimum.

My wife's credit score is around 790 and my credit score is over 800. We have no debt other than the mortgage. We could fund about 30% of the needed building funds if we needed to. We have a builder, we have plans, we have a quote.

Finally, I am here wondering about lending options I am unfamiliar with. Thanks to the episode about ADUs with Derek Sherrell today, I am looking into HomeStyle Renovation Loans. I actually had an application for a HomeStyle in with one bank near me, but the Airbnb income being invalid killed us. I actually missed qualifying by almost the exact amount our Airbnb brings in. Anyway, looking for recommendations or suggestions other than what I've posted here. Ideally, we would find a bank or lender that accepts our Airbnb income as our profile is strong. We had 100% occupancy all summer 2021 (I think it was 100% from April to when we blocked it off for several weeks due to family considerations in September). Our profile has Superhost status. We live in a strong tourist area of Wilmington, NC. The property in question is about 15 minutes from one very popular beach (Wrightsville) and about 35 minutes from a second popular beach (Carolina Beach). The city has a population of >100,000. Average nightly rate of the current Airbnb is 100USD. The new Airbnb will be an average of 220USD. Does anyone know of lenders who are comfortable lending on Airbnb real estate/investments?

So, all of that said what am I missing? What other ways are there to finance this ADU project? Drop some knowledge on this newbie!