Dalton, MA · Member since 2017 · 38 posts · 8 votes
I'm advocating for accessory dwelling units in my town. I thought this was the hard part--getting ADUs legalized--but it turns out, financing will be my biggest challenge! Has anyone actually done a Homestyle loan to build an ADU or is this type of loan just a much-publicized myth?
If you have any experience with this loan, please share your story!
Amy good morning and happy New Year. As a lender I have done many of these loans. Definitely not fiction. As long as a you have enough equity and a competent loan officer this should not be an issue.
Amy there is some language that states "All renovations must also be permanently attached to the property and add value to it. The renovations must be completed within 12 months of getting the mortgage, and the lender must monitor the job and have all the paperwork that supports the project.
HomeStyle loan requirements and rules
What properties are eligible?
Primary residences of one to four units, one-unit second homes, and single-unit investment dwellings, such as co-ops or condos, are all candidates for Fannie Mae HomeStyle loans. Manufactured homes are eligible, too, but renovations are capped at 50 percent of the “as-completed” appraised value. I hope this helps
Couple alternative options....check out Freddie's ChoiceRenovation product. I've heard of people having more success with this one over Fannie's homestyle.
Alternatively, get a construction loan from a local bank. this will allow you to subcontract out the work (as opposed to having to go through a licensed contractor for the fannie/freddie product). You can refinance to a 30 yr upon completion of the renovation, paying off the construction loan.
Thanks for your replies but I'm looking for a real-life experience here. I did a deep dive on the internet and there is lots of information about how it COULD be done but so far I have yet to find someone who has actually done it!
Hi Amy by real life experience do you mean homeowner or lender real life experience. As a lender I have a ton of real life experience with this product for your specific needs. I don't have any experience as a homeowner unfortunately.
@Amir Guerami I'm curious why you mention the need for a good amount of equity if this is a refi/reno loan. I mean I know I would need some equity but doesn't it really come down to the as-completed value of the property? With an LTV of 80%, I should only need 20% for the down payment. I guess it really comes down to how much it will cost to build an ADU?
Hi Amy. Yes at 80 LTV you should be good. Every lender has their own "overlay" on the product. An overlay is their internal credit risk "safety net" that they impose on top of the product. For example at my company we do not go over $100K in renovations so if you need $200K in renovations you are self financing the other $100K. The product does consider the ARV for calculating LTVs. Also we do not allow changes to the structure of the house on our Home Style loans …..most lenders have the same guidelines. Therefore you many not be able to take a renovation loan out to add an ADU as a separate unit on the property….it is very case by case. I would definitely talk to a professional in MA. Please also note that many if not most lenders won't allow you to self manage the renovation if the loan if the renovation is above $35K you will need a true general contractor with formal bid and their will be construction draws.