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FAM’s ADU refinance option will allow qualifying borrowers to refinance their primary mortgage and certain ADU financing like a credit card or home equity line of credit into a single, new conforming mortgage loan. This option helps borrowers potentially reduce their monthly interest payments if they financed the construction of the ADU at a higher rate.
Beyond the potential rate reduction, FAM says its new offering is designed to help create more affordable housing options and allow homeowners to take advantage of recent state changes that have encouraged the construction of ADUs. Sometimes called in-law suites or “granny flats,” ADUs can be detached or attached to a home. Some examples of attached ADUs might be a guest space converted above an attached garage or a basement. Detached ADUs include carriage houses, guest cottages, or other structures that are free-standing from the main home structure.
“We recognized a need to help increase access to new housing in areas that have increased density, as well as assist homeowners who wish to leverage that garage or section of land to generate additional income,” said Bill Dallas, president of FAM. “The demand for ADU development will continue to grow, especially as the pandemic has shifted housing preferences and more cities adopt ADU-friendly zoning changes.”
According to FAM, ADUs are seen as one solution to help address the nation’s growing housing affordability crisis as homeowners can convert a garage or unused portion of their lot into a new housing unit to generate a new stream of income by renting it out.
With the scarcity of new land to build on in many localities and the high cost of new construction, many cities have adopted ADU-friendly zoning ordinances to increase housing inventory. The growth in ADU development has been seen around the country, reaching about 1.4 million units as of 2019, according to a Freddie Mac report, and demand is highest in some of the most rapidly-growing regions in the U.S. such as California, Florida and Texas. ADUs are also an attractive living arrangement for multigenerational households, particularly for homeowners who have aging parents or adult children who need affordable housing.
“This unique opportunity will serve borrowers with conforming loan amounts and allow borrowers to potentially utilize some ADU rental income to qualify,” said Kathryn Amor, chief product officer at FAM.
Homeowners can build an ADU, and then potentially refinance the costs of it with FAM by consolidating the ADU financing with their primary mortgage.