Frequently Asked Questions

How many units can a client build?

By California State law, the minimum your can build on an owner-occupied, single-family zoned property is an ADU, a Junior ADU and a second primary home (SB-9 unit). On a duplex, you may add two ADUs. Many cities allow more, and every property is subject to FAR codes which determines the size of the ADU, so check with local codes. Details on State law may be found at https://www.hcd.ca.gov/sites/default/files/docs/policy-and-research/adu-handbook-update.pdf On rental properties, State Law only allows 1 ADU on a single-family home, and a duplex usually 2 ADUs. California state law, specifically SB 1211, allows multifamily properties to have up to eight detached ADUs, provided the number of ADUs does not exceed the number of existing units on the site, and that setback and height requirements are met. California's Density Bonus Law (Government Code Section 65915) mandates that local jurisdictions grant developers a density bonus and other incentives for housing projects that include a certain percentage of affordable units for very low, low, or moderate-income households.

How are ADUs and remodeling financed?

The least expensive financing option is a type of mortgage, either first or second position, of this the most popular is a Home Equity Line of Credit or HELOC. A HELOC provides the borrower with a checkbook from which to draw money. Every month, the client receives a bill for only the amount they have used – not the entire loan amount. When there is not enough equity in the home to cash out, borrowers may use renovation or construction loans which are based on the future value of the proposed construction. All of these options have the extra benefit of the Mortgage Interest Tax Deduction, which means the net cost of borrowing may be 4-5%. Other options include chattel loans (for Tiny Homes and RVs), loans on assets such as retirement, and credit cards, but these are often at much higher interest rates and don’t have the tax benefits.

The project is estimated to be $100,000. Can you show me what the payment might look like during the construction phase and what it might look like after it’s completed? A typical monthly cost of the ADU, when financed as part of a renovation refinance is $500. We offer a complimentary rate & term refinance when construction is completed, and that typically brings your monthly cost down to $450. Conversely, every $10,000 in construction costs $50 and $45 per month, respectively.

What if the estimate of the project goes up or down during construction? How does that affect the mortgage payment? On our construction and renovation loans, we require a 10% contingency buffer in case of cost overruns. For a $100,000 project, that means a $10,000 contingency fund. If you don’t use those funds, they are added back into the principal of the mortgage. It's a good rule of thumb however you are financing your project.

If I don't own the property, is there a loan to build an ADU? Unfortunately, no. You would need to team up with the property owner to refinance and build the ADU. We CAN title the property Tenants in Common, so you own the ADU and the current owner continues to own their primary home and land.

Renovation Loans

What is a Renovation Loan? Renovation loans are a type of mortgage, first or second position, based on future value, i.e. after construction is completed. Renovation loans are typically used if there is not enough equity in the property for a cash-out refinance or HELOC.

What if any plans do you need from us to figure out our loan amount once we're pre-approved for a renovation loan? The architectural plans are what I will need, even if you have not yet submitted them to the City.

If we pay out of pocket for design and build, at what point can we get reimbursed for that once the loan is approved? You get ‘reimbursed’ for those fees when the loan closes from the loan funds, so long as we can fit it in the budget.

How long does this renovation refinance take? If we are doing a renovation refinance, then we will need 60-90 days. That’s because we need all the details of the construction bid, HUD Consultant review, appraisal and mortgage numbers to match. It’s a lot of collaboration and nearly 100 pages of numbers, but we can make it go faster when we collaborate closely.

Is a Renovation Loan separate from my first mortgage? No, it is a refinance of the first mortgage based on future appraised value.

Would I be able to take any cash out on a renovation refinance? Unfortunately, no, but we can include renovations on other parts of your house as part of your budget and loan. In fact, it’s a good opportunity to think about strategic renovations including: - 50-year roof - Solar - Aging in place renovations - Deferred maintenance

How can I finance construction on an empty lot?

Yes, we finance the construction of new residences on an empty lot! We can even help you purchase the land and wrap the cost into one mortgage loan. These types of mortgages are based on future value expected after construction is completed. They require construction oversight and a licensed general contractor.

Other Costs

Will an ADU cause my property taxes to be reassessed? Nope. You home and land (which is the most expensive part) stay at the same tax rate. Your new square footage of the ADU is taxed at today’s rate, and they are blended together. We do not see a large increase. You can call your County Tax Assessor and they will estimate your new payment. Having said that, talk to your tax advisor about appealing that assessment based on depreciation.

How much will the ADU insurance cost? According to my expert insurance agents, ADUs are part of the parcel and therefore are insured as part of the overall property. They estimate an extra cost of $20 per month. If your insurance agent requires you to insure the ADU separately, then you may need to find a different insurance company. The only time an ADU would be insured separately is when it is sold off as a condo; then the new owner would buy their own insurance.