Financing an ADU in today’s market

Presented by Advantis Credit Union

Self Financed Options

> Pay cash from your own funds> Borrow against an IRA or 401k (if

available)Borrow from Family> Borrow from Family

> Home Equity Loan (Assuming you have the equity based on today’s value)

The Advantis Rehab Mortgage(Available for ADU’s)

> What is a rehab mortgage?> How does it work?> Benefits and limitations> Application process> How to find the best deal

What is a Rehab/ADU loan?

A rehab mortgage is a mortgage loan that combines the cost of a house and any needed repairs or remodeling.

Uses of a Rehab/ADU MortgageRehab mortgages can be used for:

> Purchasing a house that needs repairs> Purchasing a house that you intend to

remodel (Adding an ADU).remodel (Adding an ADU).> Refinancing your mortgage and borrowing

more to make major home improvements.

How Does a Rehab Mortgage Work?

> The lender approves the mortgage based on the current and estimated value of the home after improvements.

> Purchase money is advanced first.> Purchase money is advanced first.> Remainder of money is advanced in

installments as the repairs progress, less holdback.

> Inspector approves repairs.

Benefits to a Rehab Mortgage

> Property does not have to be repaired prior to closing> Lower payments than a home equity plus a mortgagea mortgage> Can advance more than the current value of the property, allowing major improvements

Limitations of a Rehab Mortgage

> Requires strong credit history > Down payment & hold-back requirements> Too expensive for small improvements> Work done by licensed contractor> Work done by licensed contractor> Only offered for owner-occupied*> Mortgage insurance required*> FHA appraisal stricter than standard

appraisal** Requirement waived at Advantis

Qualifications for a Rehab Mortgage

> Down payment requirements (no gifts)> Good established credit needed> At least 2 years on your job

Debt ratio 45% or less> Debt ratio 45% or less> 2 months savings “reserves”

Application Process

> Credit preapproval> Locate the property and perform a

feasibility analysis> Sales contract, contingent upon financing> Sales contract, contingent upon financing> Work write-up and cost estimate approved > Appraiser provides “as is” and “after

renovation” valuation> Lender issues formal commitment to lend

Comparison Shopping

> Compare loan fees> Compare loan terms – fixed or variable?> Know your lender

Questions?

Thank you for coming!Thank you for coming!