DADU Lending needed. Partial Release question/personal residence/high equity

Member since 2020 · 7 posts · 4 votes

Hello smart people,

I aim to build a DADU in my backyard to be complete by summer/fall 2027. The plan is to SELL my primary residence (after the build is done as I will be moving into the DADU) and use that money to pay for the build. Any suggestions on lenders who would lend on this project knowing front house will be sold. I have learned lending is harder to find because it is might not be easy to get a partial release from my current mortgage holder (working on it) and would love to not refinance.

(I do have a builder who will finance but I want a somewhat custom build and they will not finance custom.)

Also wondering if people have had luck with partial release situations? Conservatively mine is 45% LTV just with house and half a lot.

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Tim SwierczekPro Member

Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes

2mo

You are going to need to split the lots in order to sell one property and retain the other otherwise you're selling both properties at once you don't sell structures you sell a parc of property, typically with a structure but I'd you sell a structure on a PUD with another structure you're selling a condo. A strange, non standard condo at that.

You will need to consider egress and legal structure. This is not what you think it is. It’s not hard. It’s just not what you’re presenting or considering. Feel free to reach out by DM if you have questions.

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Bryce Fairburn
Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes
2mo
Hey Susanne

There are definitely ways to structure this, and I wouldn’t automatically assume you need to refinance the existing mortgage.

The key issue is how the current lender handles a partial release of the property once the DADU is built. With roughly 45% LTV based on the front house and half the lot, you may have a strong enough equity position to make a partial release worth pursuing.

There are also construction/renovation financing options that can potentially be structured around the fact that the existing home will ultimately be sold, but the details matter quite a bit—especially how the lot is legally divided, the current mortgage lien, and the projected value of both the existing home and completed DADU.

If you want, I’d be happy to take a look at the numbers and see if there’s a way to structure it without forcing you into a full refinance. This is exactly the kind of situation where it makes sense to look at the financing structure before choosing the builder's financing.
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- Susanne Stauffer
  OP
  Member since 2020 · 7 posts · 4 votes
  2mo
  Quote from @Bryce Fairburn:
  
  Hey Susanne
  
  There are definitely ways to structure this, and I wouldn’t automatically assume you need to refinance the existing mortgage.
  
  The key issue is how the current lender handles a partial release of the property once the DADU is built. With roughly 45% LTV based on the front house and half the lot, you may have a strong enough equity position to make a partial release worth pursuing.
  
  There are also construction/renovation financing options that can potentially be structured around the fact that the existing home will ultimately be sold, but the details matter quite a bit—especially how the lot is legally divided, the current mortgage lien, and the projected value of both the existing home and completed DADU.
  
  If you want, I’d be happy to take a look at the numbers and see if there’s a way to structure it without forcing you into a full refinance. This is exactly the kind of situation where it makes sense to look at the financing structure before choosing the builder's financing.
  
  0 Reply
Susanne Stauffer
OP
Member since 2020 · 7 posts · 4 votes
2mo
Thanks so much, Bryce. I will reach out to you directly soon. I always want to learn MORE as am a real estate broker besides this query :)
0 Reply
- Bryce Fairburn
  Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes
  2mo
  Quote from @Susanne Stauffer:
  
  Thanks so much, Bryce. I will reach out to you directly soon. I always want to learn MORE as am a real estate broker besides this query :)
  
  Sounds good! Looking forward to our conversation
  0 Reply
Tim SwierczekPro Member
Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
2mo
You are going to need to split the lots in order to sell one property and retain the other otherwise you're selling both properties at once you don't sell structures you sell a parc of property, typically with a structure but I'd you sell a structure on a PUD with another structure you're selling a condo. A strange, non standard condo at that.
You will need to consider egress and legal structure. This is not what you think it is. It’s not hard. It’s just not what you’re presenting or considering. Feel free to reach out by DM if you have questions.
1 Reply
Susanne Stauffer
OP
Member since 2020 · 7 posts · 4 votes
2mo
Adding to my original post. The two will be condominiums. Easier and less costly.
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- Bryce Fairburn
  Lender · Lake City, MI · Member since 2019 · 118 posts · 42 votes
  2mo
  @Susanne Stauffer interesting!!
  
  happy to discuss this with you further and highlight challenges you will face as you navigate it
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Mike GrudzienPro Member
Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
2mo
Need to subdivide property.
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Sean SmithBusiness Member
Real Estate Agent · Seattle, WA · Member since 2020 · 164 posts · 106 votes
1mo
Hi @Susanne Stauffer, I plan to do this as well. DM'd you my go-to lender for projects like this. Best of luck!
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2w
It sounds like you may need to find a private money lender that will allow you to do a partial release and have the lien attached to the new APN if you are subdividing it.
If the lot is huge, you might just need to subdivide it first and do a construction loan for a normal SFR with its own address and APN.
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