How Our ADU Loans Can Help Ease California’s Housing Shortage

California is going through a variety of challenges, including the need for more housing units. While you may not be able to solve the entire problem yourself, you can do one small thing to ease the shortage: you could build an accessory dwelling unit (ADU) on your property. And with our ADU loans, the process may be easier, and more affordable, than you think!

The Housing Crisis in California

California, like many areas of the country, is grappling with a housing shortage, an issue that many have deemed a housing crisis.

Numerous publications and organizations have covered the topic, including CalMatters, a nonprofit news organization that, in December of 2021, reported that over the past decade the state has added 3.2 times more people than homes.

The reasons for this problem are varied, but the lack of new units, including single-family homes, condo units, and duplexes (to name a few) has been one of the strongest contributors. CalMatters reported that, according to a state office, there should have been roughly 70,000 more units a year over the past decade.

This issue is also seen in the amount of available homes. According to the Federal Reserve Bank of St. Louis, the housing inventory in California has declined sharply over the past few years. In October of 2018, there was a recent high of over 94,000 available units. Most recently (March 2022), that number was sitting under 28,000.

Qualifying for Our ADU Loans

You may not feel that this problem is something that you can personally solve. But you could, in your own small way, help alleviate this issue. Building an ADU, for “accessory dwelling unit,” could help one person find a comfortable, affordable home. At the same time, you’ll be creating a rental unit that could bring a steady income to your monthly budget.

ADUs, like any significant remodeling project, can be costly. They can easily approach $100,000, and it’s not uncommon for these units to rack up bills above $500,000. This means most homeowners will need a loan to build these units. Fortunately, our ADU program makes qualifying for an ADU loan simple and easy.

With new laws and readily-available loan programs, both intended to make ADUs more common, these home additions could help ease the housing crisis.

Must Meet Standard Fannie Mae Guide

ADU loans can help you create a small, income-generating space on your existing property.

The first requirement for our ADU program is that is must meet the standard Fannie Mae guidelines. We basically use Fannie Mae as the standard bearer for this program, and use many of the same qualifications and details that are found in their guidelines. By using Fannie Mae’s overall guidelines, we are able to provide highly accessible loans that are beneficial to the borrower while also creating safe, responsible, reliable mortgages.

Overall, Fannie Mae’s eligibility requirements are fairly convenient, and most borrowers will meet their standards.

Multiple “Purposes” Allowed

Another benefit for this program is that you can use it for more than just one purchase. With this program, the loan can be for a purchase, as well as a limited cash-out refinance. This creates a variety of benefits for borrowers, allowing you to have greater flexibility when you are attempting to build an ADU or purchase a home with an ADU.

The purchase option is fairly simple and straightforward, as the program lets you make the purchase of a property that has an ADU or one that has the potential for building an ADU. The other option is a limited cash-out refinance. (“Limited” simply means there is a limit to how much you can cash-out. They are usually much less than a typical cash-out refinance, which also have limits.)

30 or 15-Year Terms Available

Everyone has different budgets and financial priorities. Some want, first and foremost, a low payment. Other want a mortgage that, in total, is as affordable as possible. The two are not always the same.

With this ADU program, you can select the terms that work best for you. You can choose a 30-year loan, which extends the terms further out and allows you to enjoy the most affordable monthly payments. However, if paying off the ADU loan quickly is a priority, you can utilize a 15-year loan, which reduces overall interest and allows you to be free and clear of payments is less time. The monthly total, however, will be higher.

Must Be Located on a One-Unit Property

If you are going to build an ADU on your property, there is an important consideration: it must be located on a single-unit property. Basically, if you own a duplex, a three-unit property, or a four-unit property, you cannot use this loan to fund an ADU.

These loans are intended specifically for creating ADUs on single-family properties, which is largely seen as an important solution (among many) for easing the housing crisis.

Rental Income Permitted When Qualifying

When you are using these loans, you can use potential rental income while qualifying, which is not always an option with other loan programs. Basically, you will need to have official documentation of how much an ADU would be able to bring in monthly rent. A portion of this future rent can then be used towards your loan qualification.

This can increase your chances of approval and allow you to build a world-class ADU on your property.

Various Manufactured Homes Allowed as Well

We understand that homebuyers are looking for a wide variety of property types. To make affordable housing more accessible, we also allow for ADUs on different types of manufactured homes. A site built or modular home is an option with our loans, an option that is actually not available with the standard Fannie Mae loan product. This allows for more choices when you need to build an ADU on a budget-friendly property.

Secure Your ADU Loan Today!

If you are interested in helping ease the housing crisis, providing a home for a reliable tenant, and earning a monthly income from your property, talk to our team about ADU loans today.

We’ll walk you through the process and show you all the details so you can make an informed decision. We’ll also help with your application so the process is as smooth and seamless as possible!