Unpermitted ADU Home Loan
Buying or refinancing a home with a granny unit or addition that was built without permits? At least one program does not require the ADU to be permitted when the appraiser indicates it is a legal use of the property.
What the appraisal has to show
When a permit is missing, the appraiser’s comments on the work and on zoning carry most of the weight.
- At least one program does not require the ADU to be permitted if the appraiser indicates it is a legal use and was completed in a skillful manner.
- For an addition built without the required permit, the appraiser comments on the quality and appearance of the work and any effect on value.
- Property usage still has to conform to zoning laws and regulations.
- Legal nonconforming use is acceptable when its current use does not adversely affect value and marketability.
- At least one program accepts multiple ADUs when the municipality allows that setup and the appraiser confirms compliance with local regulations.
- ADU rent can help you qualify when market rent is documented on a Form 1007.
Unpermitted ADUs can still qualify
More than one ADU considered
ADU rent can count toward income
Older units can be grandfathered
Unpermitted second kitchens may work
Permit it during a renovation
How Lenders Treat Missing Permits
The answer depends on zoning, on what the appraiser reports, and on the program.
An accessory dwelling unit, or ADU, is an additional living area on the same parcel as the main home. It provides for living, sleeping, cooking, and bathroom facilities, and it is subordinate in size to the main home. Examples include a living area over a garage, a living area in a basement, or a small addition.
A missing permit and a zoning problem are two different questions. At least one program does not require the ADU to be permitted if the appraiser indicates the improvements represent a legal use of the property. If the requirements are not met, the unit is given no value, so the rest of the home has to carry the loan.
Fannie Mae rules can accept an ADU that zoning does not allow at all. The lender confirms the unit will not jeopardize a future insurance claim, the home is appraised on its current use, and the appraisal shows at least two comparable sales with the same non-compliant use. FHA requires the ADU to comport with zoning, which may include a legal nonconforming use.
Why choose Saxton for a home with an unpermitted ADU
This page is for buyers and owners of a home where the ADU or an addition was built without permits.
Programs That Skip The Permit
At least one program we offer does not require the ADU to be permitted. The appraiser has to indicate it is a legal use of the property that was completed in a skillful manner.
Room For Multiple ADUs
At least one program accepts a single family home or a 2-4 unit property with one or multiple ADUs. The appraisal needs at least two comparables with a similar setup.
We Read The Appraisal First
If the appraiser notes an addition without permits, we look at the comments on the work and on zoning before we pick a program.
Rent Counted The Right Way
Fannie Mae and FHA each limit ADU rent to 30 percent of qualifying income. At least one other program counts ADU rent under its own rental income rules once market rent is on a Form 1007.
Agency And Non-QM Options
We compare Fannie Mae, FHA, and non-QM programs, because each one treats an unpermitted unit in its own way.
What Will Not Work
Some jumbo programs do not accept unpermitted additions, and at least one investor cash-flow program does not accept unpermitted improvements. We tell you that up front.
Hear From Homeowners Like You
Frequently Asked Questions
Straight answers to the questions buyers and owners ask about ADUs and additions built without permits.
Yes. At least one program does not require the ADU to be permitted, provided the appraiser indicates the improvements represent a legal use of the property and were completed in a skillful manner. The property must also conform to zoning laws.
Not by itself. If the appraiser finds an addition that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on market value.
It can. At least one program allows ADU rent when the appraisal reflects legal zoning compliance, and it states that permits are not required to establish zoning compliance. The appraisal needs at least two sales comparables with an accessory unit, and the Form 1007 needs at least one rental comparable with an ADU.
Up to 30 percent of your qualifying income. Fannie Mae allows rent from one ADU on a one-unit principal residence, on a purchase or limited cash-out refinance. FHA does not allow ADU rent to qualify for a cash-out refinance.
It can. Fannie Mae permits only one ADU on a one-unit home, but at least one other program accepts multiple ADUs when the municipality allows that setup and the appraiser confirms compliance. Another program considers up to three ADUs on a one-unit property case by case.
It can still work under Fannie Mae rules. The lender must confirm the unit will not jeopardize a future insurance claim, the home is appraised on its current use, and the appraisal shows at least two comparable sales with the same non-compliant use and at least three settled sales in total.
It can. On at least one renovation program, any existing unpermitted areas must be permitted by the end of construction. On at least one VA renovation program, previously unpermitted additions or improvements must be permitted or removed by the end of the project.
Saxton Mortgage does. At least one program we offer does not require the ADU to be permitted when the appraiser indicates the improvements represent a legal use of the property.
Find out what you qualify for
Tell us about the ADU or addition and what the appraisal says, and we will check how it fits our programs.
Get Pre-QualifiedLoan amounts, rates, terms, and eligibility are subject to credit approval, asset and income verification, appraisal, and program guidelines. Program availability varies by state. Not all applicants will qualify. Saxton Mortgage, LLC is an Equal Housing Lender.