Hi all - buckle up because this is complicated. Would LOVE any advice you have on how i can solve this problem, or if you find any gaps in my assumptions.
First, I'll start out with the end-goal:
My parents are aging and I'd like to move them onto my property ASAP so I can help take care of them. I'd like them to live in a space that is at least 750 Sq Ft, has 2 bedrooms, and is all one level.
Next, here's what I have to work with:
I own a duplex in Oakland. I live in the upper unit with my wife & a roommate, and I rent out the lower unit to tenants who I love, and whose income covers 37% of my mortgage. We have a big backyard (~50 ft by 50 ft). I have an excellent interest rate (3.125%), so i'd be very hesitant to refinance.
Limitations
-I bought my home in 2021, so I don't have much equity in the home, which means my LTV is very high (~80%). Similarly, my debt-to-income ratio (DTI) is very high (~80%). Because of this, banks don't want to lend to me. Nearly every mortgage broker I've spoken to has said my DTI is a non-starter for any loan.
-Cash is limited. Even though I make a relatively good income, I spent most of my cash on my home purchase, and my parents don't have much cash either. They can afford to pay off a monthly amount, but they don't have a lump-sum amount.
-Because it is my property, my parents themselves cannot get a loan, the loan must be to me.
-Fannie Mae will not allow financing of an ADU on a Duplex. Even if I had a lower DTI, Fannie Mae wouldn't back any loan to build an ADU on my property.
Options I've considered
-Prefab ADU: I've looked at a LOT of ADUs and ADU companies. Building an ADU in my backyard seems like the best case scenario - i don't have to kick out my tenants (or forfeit their rent), my property increases in value, my parents get a nice space to live in, my parents could afford the cost of a monthly mortgage, and I'm increasing housing density in a city that needs it. The problem here is financing - the cheapest ADU I can find that meets my criteria is ~$400k, which banks will not lend me.
-Renovate the lower unit & evict my current tenants: This is an unsavory option for many reasons. First, I would hate hate hate to evict my tenants - they've been living here for a long time, they're wonderful, we have a great relationship, and they pay rent on time. Second, the unit isn't in great shape (most notably, there are a bunch of weird steps up and down between rooms, and the bathroom has like 3 steps in it - all of which is bad news for old folks), so to make it nice (and level) would cost up to $300k. On top of that, kicking out the tenants would increase my family's costs 2x - we'd need to somehow cover the cost of lost rent, AND we'd need to pay whatever the construction loan is. All of this on top of the fact that i likely can't even get a construction loan due to my DTI.
-Build a small (~300-500 sq foot) addition to the lower unit, and then divide the first floor into two equal sized units, so that I end up with a Triplex. Parents live in one unit, tenants live in the other unit. Sadly, this still seems somewhat expensive and relies upon my ability to get a loan.
-Renovate the lower unit with a very small budget. This seems like the likeliest option - we can only do a few things (unclear if we can even get the basics covered), but we can get my parents moved in, and have minimal cost. They would pay me the same rent my tenants used to :(, so no major uptick in cost.
What I'm pursuing
-Getting a loan from Family - this is pretty unlikely, but it seems like the only situation that may be able to grant us the cash to move forward with some of these options
-Lower unit with very small budget - Next steps here are determining how much cash i have at my disposal for a project like this (not huge), and then getting quotes from contractors for building the basics.
What I'd love help on
-What haven't I considered? Are there financing options out there for me? Are there organizations that help with this? Are there companies that can help build an ADU within the constraints that I have?