The surge in popularity for shipping container homes and other types of ADUs (Accessory Dwelling Units) continues to rise. After recent updates to mortgages, it has never been easier to acquire funds to build your own ADU for family guests or residual income with a rental unit. Freddie Mac is the first mortgage lender to offer ADU specific financing options that utilize their range of mortgage products. These new changes allow you to acquire more borrowing power and put your dirt to work in a few weeks.
Here we will break down the changes, talk about how this helps you get ROI quickly, and discuss the future as it relates to ADU and shipping container home financing.
Financing Prior to These Changes
Acquiring financing to purchase a shipping container home has, up to this point, posed a set of challenges. The income allowed to be factored in loan calculations, the loan terms, and more were all hurdles to overcome and did not always set the borrower up with the best options in comparison to traditional financing. We are proud to offer 0% interest financing options up to $50,000 through loanglide, but many of our builds are well over that threshold and our customers would be on the hook for the difference. If you are looking at a luxury shipping container like The Olive (pictured below), or a multi unit build like The Homestead, you could be paying more than half of the cost out of pocket or have various loans to keep up with, depending on your situation. Freddie Mac’s new ADU financing options allows you to borrow up to $200,000.
Key Changes in Borrowing Options for ADUs
These key changes come in the form of Freddie Mac’s mortgage offerings. Borrowers are able to factor more types of income and use the wide variety of mortgage products in the Freddie Mac portfolio. The biggest change comes for our rental community. As a borrower who is looking to build or install an ADU on their property for rental purposes, you are able to factor up to 30% of your total factored income with the anticipated income of the rental unit. To rephrase, you can now use residual income projections to factor into your loan application. With container homes and other ADUs potentially making you more than $4,000 a month, this increases your borrowing power. With more buying power you can upgrade your current offering with add-ons or increase your total volume of rental units. There are a few requirements regarding rental income from the ADU specifically:
- Rental income that is documented with a lease must not exceed 75% of the lease amount.
- Qualifying rental income cannot exceed 30% of total income used to qualify.
These borrowers will have to go through the appraisal process where rental analysis will be conducted alongside. To see a breakdown of the program and the specific requirements you can browse this ADU Fact Sheet from Freddie Mac. This also opens the entire portfolio of Freddie Mac’s mortgage products instead of being limited to more affordable/lower term loans. For example, their CHOICERenovation℠ mortgage allows homeowners to renovate their existing home to add an ADU or loop in an ADU purchase to their overall home purchase.
What This Means for You
These changes open up many opportunities for our customers to navigate financing their container homes. Having the ability to use a portion of your anticipated rental income increases your borrowing power with previously ignored funds. This also creates an easier ecosystem to enter into a competitive real estate market. Typically, the real estate market can be hard to tap into. These changes in financing options make the barrier to entry much more navigable for those looking to enter the space and start making passive income. It is easy to leverage multiple rental assets to acquire more, but what if you do not have a 15 property portfolio to leverage? This is your solution. Our borrowers are also no longer limited to $50,000 in financing funds. Our partnership offering for financing only allows for loans up to $50,000 which limits the container homes you are able to cover fully with financing. After going through the process you can borrow up to $200,000 for your ADU as long as the market allows for it.
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What Does the Future Look Like?
As this process picks up traction we fully expect to see more mortgage lenders alter their offerings to match something similar to this. Back in February, the White House conducted a virtual discussion aimed at discussing strategies to promote the construction of ADUs in response to the housing crisis. It is obvious that this new way of adding value to your property is gaining traction. This Washington Post article breaks down the increase and what it means for the future of housing. The government and other real estate entities see this as a great opportunity to combat rising mortgage rates, home costs, and more, so there is no end in sight. As these products continue to evolve, so will financing offerings. Stay up to date on current market trends and financing options by signing up for our newsletter below.
Steps to Acquire ADU Funding
- See if You Qualify
- Get a Quote from Bob’s Containers
- With the ideas above in mind, we will work with you to put together a custom proposal based on your needs.
- Reach Out to Your Home Lender and/or Mortgage Broker
- Take this quote to your lender to start summing up your total costs.
- They will help you understand what income you can include in your application.
- Bob’s Builds
- We will then take your quote and get to work building.
- You will be set up on our project management system to monitor the progress of the build and stay in touch with questions and updates from our side.
- Click here for a more detailed description of the build process.