Why ADUs can be used for aging in place – and how reverse mortgages can help
Accessory dwelling units (ADUs) have great potential for aging populations, as evidenced by their growing popularity and by statements from both private companies and government officials emphasizing their usefulness for senior housing.
In one recent copy emphasized by the Los Angeles Timesone family turned to an ADU after finding limited options and is ready to see a loved one live in a modern, age-appropriate environment.
When the elderly mother of a homeowner — who lived alone in a Chicago apartment and was often isolated due to the area’s weather — was pushed out of her home, the family encouraged her to move to the Los Angeles area to be closer to to be her family and live there. in a warmer (and often more predictable) climate.
But when the apartment’s landlord declared that all units in the building would be renovated and that all current tenants would move out, the clock began ticking for a solution. Ultimately, after obtaining a living allowance from the state of California, the family tried to find a better arrangement. The solution was impressive but complete: an ADU.
“The lot may have been small at 3,500 square feet, but the collapsing rear garage had easy access to an alley and concrete path that would be useful for a second home and tenant,” the Times report said.
After hiring a local architect who understood the needs of aging, a new 600-square-foot ADU was built after four years at a cost of approximately $400,000.
“The unit features one bedroom and an accessible bathroom with a frosted glass door that provides privacy and can accommodate an attendant if necessary,” the story reads. “A large kitchen with washer and dryer becomes even more convenient thanks to an island on wheels that can be moved if it’s in the way.”
To meet the need for more housing, California has evolved and even made exceptions to some of the regulations governing structures. For example, San Jose allows homeowners to sell ADUs on their properties as starter homes. In Los Angeles County, stormwater regulations are causing construction delays have been abolished for those who want to start immediately with small-scale housing projects.
The reverse mortgage industry has also taken notice of the potential for ADUs. Although the ultimate occupant of such a home would not be able to use a product like a Home Equity Conversion Mortgage (HECM) to finance an ADU on their own, a professional previously explained for HousingWire‘s Reverse Mortgage Daily (RMD) states that a homeowner age 62 or older can take out a HECM loan and use the proceeds to finance the construction of an ADU for someone else.
“It’s excellent because of the income someone gets from having it built,” said Renee Konstantine, reverse mortgage division director at EstaR mortgage in San Diego, RMD said last year. “The proceeds they use to build it are not taxable, and then they receive cash monthly.”
But it’s not necessarily a piece of cake to get a reverse mortgage to finance the construction of an ADU, she added.
“You have to cooperate [ADU specialist] mainly contractors,” she said at the time. “They told me that they know the people there in their local town, they know who they are talking to and they know what is needed. And you should definitely let the contractor do the heavy lifting on the construction side, and work with them every step of the way.”
Moreover, the Federal Housing Administration (FHA) late last year established guidelines for considering rental income when underwriting term mortgages and conducting the financial assessment for HECM loans. The FHA included the addition of ADUs to the definitions of eligible properties in the Single Family 4000.1 Handbook, part of a comprehensive reverse mortgage revision of that document earlier this year.
