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Accessory Dwelling Units Provide Flexible Solutions

June 19, 2015 — 2 min read

Accessory Dwelling Units and Mortgage

Accessory Dwelling Units (ADUs), also referred to as accessory apartments, mother-in-law suites or basement and above garage apartments, are additional living quarters with a kitchen and bath, on single-family lots, independent of the primary home. First adopted after World War II to fulfill the housing shortage, the popularity of ADUs is on the rise again.

As the rental market heats up, ADUs offer homeowners flexible options throughout their lives, while creating potential income. Many municipalities have embraced them, even waiving initial permitting fees as a way to encourage homeowners to take advantage of increasing living space, or creating a rental unit on their existing property.

Homeowners historically financed ADUs with lines of credit or cash. Now many financing options now exist for different ADU construction scenarios, including:

  • Purchasing a new home or refinancing an existing home and building an ADU
  • Constructing and financing a new home with an ADU
  • Using existing home equity to build an ADU

Appraisals for properties with ADUscan be slightly more complicated than for single-family homes, as finding comparables can be tricky. Lenders can proactively help by requesting an appraiser with knowledge of ADUs and "green homes" from their Appraisal Management Company. An income-based appraisal valuation looks at the home as an income-generating property but may be slightly more expensive depending on the loan scenario.

Potential homebuyers are now searching for homes with ADUs or lots with the potential to build an ADU. Earth Advantage has created an ADU designation for realtors to receive certification and continued education; increasing their knowledge to respond to client demand. In addition, homeowner classes are also offered frequently and often include tours of locally built and owned ADUs.

For more resources, check with your city zoning/building departments, or visit www.accessorydwellings.org or Portland area blog www.pdxadu.blogspot.com for ideas, tips, and real-life scenarios.

If you are interested in financing options for building an ADU or refinancing a property with an existing ADU, contact us today!

*ADU image taken during "Portland's 2nd Annual Accessory Dwelling Unit Tour" May 2015.
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