Whether you own a home and want to create an ADU on your property, or are considering buying or building a home with an ADU in it, you will want to consider the finance options available to you. Depending on the scope of your project, you may elect to use only your own assets, a private loan, public financing, or a combination of these. Below you will find information about both private and public financial requirements and assistance.
If you will need private financing in either your home purchase or ADU construction project, you may first want to get pre-loan approval before you apply for your loan.
The purpose of pre-loan approval is to find out if it appears your credit rating will allow you to get a loan, and to get an estimate how much of a loan you are eligible for. The lender will ask you to bring certain materials or records with you. While these may vary, somewhat, from lender to lender, you should expect the following kinds of materials to be requested for your visit:
- Current payroll stub
- Recent bank statement
- A list of your debts
- Details of any divorce or bankruptcy
Word Of Caution
The loan approval process will be based upon documenting the required information at the time you are ready for your loan. If you acquire any new debt after the pre-approval, such as the purchase of a new car, it might affect the amount of loan you are eligible for, no matter what amount your pre-approval resulted in.
The lender will need to document your income and any savings or other cash assets you will apply to the project, and recheck your credit by obtaining a current credit report. These steps are similar to those involved with pre-loan approval.
The lender also will require an appraisal for the project. For the appraisal, you will need a detailed cost estimate, a description of materials and specifications, a set of plans or drawings of the project, and a contract with a contractor. The appraiser will verify that the value of the project (as it will look and be when it is completed) supports the amount of private loan you want to have.
Can You Count Rental Income From The ADU When Getting A Loan?If you are planning to either buy or build a home with an ADU, keep in mind that, at this time, most lenders 'generally' do not include the potential rental income from the ADU in computing your income, for purposes of determining the value of loan you can qualify for.
ARCH and the City of Seattle are actively working with the lending community to modify this practice. At this time, we are not aware of any bank that includes a portion of rental income in determining the amount of a loan.