Unpermitted additions in refinance appraisal

[Marie B Barde]

Hi:

I would like to refi my property to take advantage of current low interest rates.  I am paying 4.25, 30 year fixed.  

Problem:  I have added a non-permit rental by converting my partner’s pottery studio in back.

Question: Do I tell my current banker about the studio and ask her advice?   Could that conversation result in problems with my current loan?  Should I approach the other bank with whom I have accounts and get a new loan there?   Would they even approve a new loan with this unpermitted studio?
 
Finally, would the risks and/or headache be worth the additional couple hundred per month?

Marie:  Oakland, CA

[Stephanie P.]

Originally posted by @Marie B Barde:

Hi:

I would like to refi my property to take advantage of current low interest rates.  I am paying 4.25, 30 year fixed.  

Problem:  I have added a non-permit rental by converting my partner’s pottery studio in back.

Question: Do I tell my current banker about the studio and ask her advice?   Could that conversation result in problems with my current loan?  Should I approach the other bank with whom I have accounts and get a new loan there?   Would they even approve a new loan with this unpermitted studio?
 
Finally, would the risks and/or headache be worth the additional couple hundred per month?

Marie:  Oakland, CA

Hope for the best, but expect the worst.  Go forward with the loan.  Get the appraisal.  The appraiser may ask if permits were pulled and they may not.  The appraiser may say the project was done in a "workmanlike fashion" and that may be sufficient.  It could be that permits are not required if you stayed within the previous structure's footprint.  The underwriter may ask about whether the unit is permissible under the current zoning as well.  Lots of maybes.