Mighty Buildings Webinar: ADU Financing

“Step by step, place became property, property became a mortgage, and

mortgages became derivative investments.”

― Douglas Rushkoff

       Mighty Buildings launched its vlog and held webinars to help our customers educate themselves on topics from the adu basics, to more in depth topics such as  financing. We invite specialists and expert speakers to discuss the most valuable topics for our clients. Here’s a short summary of our webinar on financing your adu held in June, 2020. For more info you can always subscribe to our YouTube channel by visiting: https://www.youtube.com/watch?v=SwpaFcA7ayE&t=2064s 

       Our guest speaker for the ADU Finance webinar was Lindsay Moon. Lindsey is a licensed mortgage broker with Searchlight Lending, an independent brokerage firm based in San Rafael, California. Along with traditional mortgages she also deals with all different kinds of loan products to ensure clients get the product that best matches their needs and situation.

       There is a great benefit to using an independent broker because usually you can find someone relatively local that knows your market; as an independent they can go out and find the best deal, regardless of which financial institution it is with; and most of the brokers can get wholesale pricing from their lenders that they’re able pass on to you. Another benefit to working with an independent broker is that brokers have software which helps to run a personalized scenario based on what a client is looking for in terms of the loan amount and his/her credit score to be able to  real time rates ensuring that you’re getting the best rate available on the market. In doing so they save you the effort of going to each bank separately. The bottom line benefit to working with an independent broker: time and money saved.

Four main options for financing an ADU:
1. Cash-Out Refinance
2. HELOC (Home Equity Line of Credit)
3. Construction Loan
4. Private/Hard Money Loan

      The easiest ways of refinancing are  Cash-Out Refinancing and HELOCs. Private/hard money is a solid option for prefab ADUs, where you’re building faster (for example, if you’re building a home it’ll take you around a year and if you’re building ADU it takes you less than six months). So private money is more viable in this situation than normal, because once your ADU is installed you just refinance back into a regular 30-year fixed mortgage with the ADU and you’ve increased your property value while potentially lowering your interest rate, leaving you with a win-win scenario.

       HELOC (Home Equity Line of Credit) is good for smaller or short-term loans. The advantages of doing a HELOC versus a Cash-Out Refinance will really depend on a number of factors specific to your unique situation.

Benefits of getting a prefab ADU:
1) Rental income
   - Starting Jan 2020, you can rent out both dwellings: primary residence and an ADU
2) Increase in property value
   - Appraisal highly depends on where you build
3) Extra space on the property: office, guest house, etc
4) Multi-generational living
5) Fast installation (usually less than a month on-site)
6) Reduced permitting time 
7) No impact fees if you build < 750 sq. ft
8) Helps with the affordable housing crisis & urban infill.

       So if you’ve started to think about refinancing it’s definitely worth talking to someone who’s been around for at least a couple of years in the field and has enough knowledge to answer your questions and get your the best deal.