Mortgage Options-Duplex with ADU (Detached Garage Apt)-Charlotte

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Mortgage Options-Duplex with ADU (Detached Garage Apt)-Charlotte

Matthew Jones
Business Metrics Analyst · Cornelius, NC · Member since 2015 · 41 posts · 27 votes

Hi All,

I have an awesome 3 family property in Charlotte, NC under contract, but I am now having issues locking down financing, which previously didnt seem to be a problem until some rules interpretations.

The property is a Duplex with a big detached 3 car garage that has an apartment above it. Throughout the whole process, I considered this a triplex or 3 unit property, not knowing that semantics really mattered in the way you describe it the property. I just assumed than when certain lenders would loan money on "2-4 unit properties", the way the units are structured shouldnt matter.

We have been working on an FHA loan for financing, and all was good until the appraiser called the Property a "Duplex with an ADU." Apparently, the FHA will loan on 2-4 unit properties that are all attached, or also loan on a SFR that has an ADU, but not a Duplex with an ADU, which makes no sense at all but it is what it is.

And now my broker is telling me that he is finding no available mortgages for a multi-family property with an ADU, not even conventional mortgages.

I admit that this is a pretty strange property layout (Duplex with detached garage/apartment) but I see no reason why I should be able to finance this baby!

This is blowing my mind, and im not ready to give up fighting for this property and this deal.

Does anyone have any experience with this, or any ideas of ways to be creative and find a mortgage to close the deal?

Obviously, I know I could possibly use a hard money lender or cash, but I would prefer to use traditional lending if possible.

Any help is greatly appreciated!

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y

Hi @Matthew Jones,

A trick that often works out here in California is to remove the kitchen/bathroom and convert it into a storage area or workshop. The least work possible is to remove the oven (so it's not a "kitchen") and remove the toilet (put a sanitary cover over the sewer hole, there now it's not a "bathroom"). Do this prior to the appraisal. Coin toss success rate. Here in the Bay Area our housing stock is often 75 or 100 years old, and Prop 13 means no one ever wants to get permits, so appraisers seem to be fairly forgiving. No idea how it'll play out in your market.

This often comes up with investment properties that have been owned by the same person for several decades. Grandpa put an RV in the back yard and wants to call it a triplex, etc. He got a mortgage just fine on it back in 2006 and doesn't understand why you are having trouble in 2017. The non-coin toss 100% success rate method is for the seller, prior to listing it, to have removed all unpermitted/unzoned/jenky work.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    Hi @Matthew Jones,

    A trick that often works out here in California is to remove the kitchen/bathroom and convert it into a storage area or workshop. The least work possible is to remove the oven (so it's not a "kitchen") and remove the toilet (put a sanitary cover over the sewer hole, there now it's not a "bathroom"). Do this prior to the appraisal. Coin toss success rate. Here in the Bay Area our housing stock is often 75 or 100 years old, and Prop 13 means no one ever wants to get permits, so appraisers seem to be fairly forgiving. No idea how it'll play out in your market.

    This often comes up with investment properties that have been owned by the same person for several decades. Grandpa put an RV in the back yard and wants to call it a triplex, etc. He got a mortgage just fine on it back in 2006 and doesn't understand why you are having trouble in 2017. The non-coin toss 100% success rate method is for the seller, prior to listing it, to have removed all unpermitted/unzoned/jenky work.

    1Reply
  • Matthew Jones
    OP
    Business Metrics Analyst · Cornelius, NC · Member since 2015 · 41 posts · 27 votes
    9y
    Originally posted by @Chris Mason:

    Hi @Matthew Jones,

    A trick that often works out here in California is to remove the kitchen/bathroom and convert it into a storage area or workshop. The least work possible is to remove the oven (so it's not a "kitchen") and remove the toilet (put a sanitary cover over the sewer hole, there now it's not a "bathroom"). Do this prior to the appraisal. Coin toss success rate. Here in the Bay Area our housing stock is often 75 or 100 years old, and Prop 13 means no one ever wants to get permits, so appraisers seem to be fairly forgiving. No idea how it'll play out in your market.

    This often comes up with investment properties that have been owned by the same person for several decades. Grandpa put an RV in the back yard and wants to call it a triplex, etc. He got a mortgage just fine on it back in 2006 and doesn't understand why you are having trouble in 2017. The non-coin toss 100% success rate method is for the seller, prior to listing it, to have removed all unpermitted/unzoned/jenky work.


    I thought about that... but then the issue is there is a tenant currently in said apartment above the garage, who I was going to evict anyways because she is on an expired lease, and she is a terrible tenant.

    None of the work is really janky, and as far as I know, everything was permitted properly and the county considers the property a TriPlex. But the FHA considers it a Duplex with an ADU.

    However, I am actually pretty sure the stove doesnt work in the apartment above the garage anyways, so I bet we could work that out to be removed. But removing the toilet would probably not be possible. 

    I very much appreciate the thoughts!

    0Reply
  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    9y

    Some lenders does  accessory unit. You can contact local bank which may be great help for this kind of units. 

    0Reply
  • Don Harris
    Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
    9y

    @Matthew Jones one of my many resources as a Realtor is having a mix of lenders,  Feel free to contact me for a name that may be ble to assist you. Best, 

    0Reply
  • Tim Lucas
    Investor · Redmond, WA · Member since 2021 · 54 posts · 27 votes
    3y

    FHA's guidelines seem to have changed. Now the 4000.1 says: "For any property with two or more units, a separate additional dwelling unit must be considered as an additional unit."

    So it just calls the ADU another unit if it's on the same property as a duplex or triplex.

    Correct me if that's not how it's panning out in real life!

    1Reply
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