Investor · Bay Area, CA · Member since 2015 · 1 post · 0 votes
I'm looking to purchase a primary residence with an existing ADU in Contra Costa county. Are there any loan programs that will allow me to count the ADU rent as income to help me qualify for the home loan? Or are there other creative, nontraditional financing options out there that would help me purchase the home? The HomeReady loan program won't work because my income is a tad higher than the median for that area, but not high enough for me to purchase the home without counting the income.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
4y
@Michelle Herbst the issues you are running into come down to zoning. Conventional lending guidelines for owner occupied properties don't view a duplex and an SFH with an ADU as equal. In a duplex (zoned as a duplex), you can use 75% of as-is or market rents to help qualify if your DTI is above the required limits. You cannot do the same (at the time of this writing) with your situation since you are an SFH zoning with an additional unit. You are asking why, the simple answer is the conventional guidelines are INCREDIBLY slow to adjust to changing housing conditions. ADUs are very new and conventional guidelines are national. ADUs are only pertinent in HCOL markets, yours being one of the top. So short answer is conventional owner occ guidelines do not incorporate ADU rental income into your income to help qualify. I know this as I have an ADU I built in 2021 in my LA market and appraisers nor conventional lenders provide market or rental value for it. This could change but as of now, no market value or rental value can be used.
Hey Michelle, looks like we are neighbors! I'm in CoCoCo as well. While I don't have direct knowledge of a loan program specifically, I would encourage you to reach out to the BP Podcast host - David Greene's team:
https://www.davidgreene24.com/
(did you know he's in Brentwood?!) - I'm willing to bet his team can steer you in the right direction.
DM me if you want to talk REI - perhaps form a local meet up?!
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
4y
@Michelle Herbst the issues you are running into come down to zoning. Conventional lending guidelines for owner occupied properties don't view a duplex and an SFH with an ADU as equal. In a duplex (zoned as a duplex), you can use 75% of as-is or market rents to help qualify if your DTI is above the required limits. You cannot do the same (at the time of this writing) with your situation since you are an SFH zoning with an additional unit. You are asking why, the simple answer is the conventional guidelines are INCREDIBLY slow to adjust to changing housing conditions. ADUs are very new and conventional guidelines are national. ADUs are only pertinent in HCOL markets, yours being one of the top. So short answer is conventional owner occ guidelines do not incorporate ADU rental income into your income to help qualify. I know this as I have an ADU I built in 2021 in my LA market and appraisers nor conventional lenders provide market or rental value for it. This could change but as of now, no market value or rental value can be used.
Real Estate Investor · Rancho Cucamonga, CA · Member since 2017 · 5 posts · 0 votes
4y
@Jonathan Taylor I also bought a SFR+ADU and they totaled the bedroom and bathroom count to realize market rent and it barely worked out. What if you are a w-2 employee and also run a STR business or a 30 day+ furnished rental business and are able to claim the income of the ADU as business income. Would you be able to use that to qualify?
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
4y
@Edgar Gonzalez was this a conventional loan or Investor based non QM loan? Conventional loans do not allow ADU income to help qualify for a loan. Investor based loans, lender dependent, most likely can use the income to help debt cover.
Please clarify refi or purchase scenario to help answer your questions
@Edgar Gonzalez was this a conventional loan or Investor based non QM loan? Conventional loans do not allow ADU income to help qualify for a loan. Investor based loans, lender dependent, most likely can use the income to help debt cover.
Please clarify refi or purchase scenario to help answer your questions
I used an investment conventional loan with 25% down on my rental, but the loan only worked out because of increased rents and they ended up combining all bed and bath counts between both units to get market rent projections. But, I was just wondering if what I said originally regarding using a STR rental business route and showing projected rents using this model would allow you to use that income towards qualifying for the loan. Like you said, it would probably just ofset the debt.
So this property isn't occupied by you, correct? Who are you referring to when you say 'they ended up combining all bed and bath counts between both units.' That isn't a standard for rent comps on appraisers.
There isn't a simple answer that can be posted here because if your business is an STR operator and want to buy a property using your P and Ls/bank statements from that business to qualify for a loan then we are talking about something different. But from what I gather, you live in an SFH with an ADU, run a STR business out of the ADU and are asking if the profits from that business to help qualify you for a loan, the short answer is probably not. I haven't run into this exact scenario before but checking Conventional guidelines states ADU income can't be used as income to qualify for a conventional loan.