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Finance of America debuts refi-ADU product

Recent study found the average cost of an ADU was $180,000

Finance of America Mortgage (FAM), the multichannel lender, announced today that it is offering a refi product for homeowners with accessory dwelling units (ADUs).

According to a statement issued by Finance of America, the refi option will allow homeowners to refinance the costs of the ADU by consolidating the ADU’s financing with their primary mortgage into a new conforming mortgage loan. This in turn would reduce a homeowner’s monthly interest payments.

The lender said that beyond the rate reduction, the refi product was designed “to help create more affordable housing options” and “allow homeowners to take advantage of recent state changes that have encouraged the construction of ADUs.”

ADU’s, sometimes referred to as “granny flats,” are livable units that are sometimes detached or attached to a home. Examples of ADUs include guest cottages, carriages houses, or garages and basements converted to guest spaces.

Bill Dallas, president of Finance of America Mortgage, said in an interview with HousingWire that the hope behind this initiative is that it will spur more homeowners to consider building an ADU and by doing so, introduce more housing options to the market.

How brokers can help today’s unique borrower

Today, more borrowers are self-employed, work remotely and have multiple streams of income. For brokers, working with these borrowers can be complicated because they require unique processes. HousingWire recently spoke with Bill Dallas, President of Finance of America Mortgage, to discuss how brokers can leverage technology to accommodate today’s average homebuyer.

Presented by: Finance of America

“We recognized a need to help increase access to new housing in areas that have increased density, as well as assist homeowners who wish to leverage that garage or section of land to generate additional income,” Dallas said.

“Our idea was how do we assist homeowners to make that conversion so that we can help solve affordable housing, that is the goal,” he added.

A recent study by Porch found that the average cost of an ADU is $180,000 ($260 per square foot). The proptech company found that ADUs are growing at a rate of 9%, or 100,000 per year. ADU sale listings are growing fastest in Portland (+23%), Dallas (+19%) and Seattle, and the top states for ADUs are California, (30%), Florida (12$), Texas (10% and Georgia (5%).

Most homeowners finance ADUs through home equity loans, cash-out refinancings and construction/renovation loans

Dallas noted that the idea for this refi product has been in the works for some time but that there wasn’t much interest from the Federal Housing Finance Agency during the Trump administration, so the product was tabled.

However, recently there has been “receptivity from the agencies and they took up our initiative and we were able to work with them to create this product,” Dallas said.

Interest in “granny flats” has steadily increased, with 1.4 million distinct single-family properties with accessory dwellings identified in 2019, a report published by Freddie Mac found.

The report also noted that from 2003 to 2019, the percentage of rental ADUs increased, with the number of active rental listings increased from 1.8% to 4.1%, while the number of leased rental listing rose from 1.2% to 2.9%.

And despite all signs pointing to the refi wave tapering off, Dallas noted that this is the perfect time to introduce this particular refi product because “refi cash outs will get much bigger” this year.

“If you’ve invested money and you built an ADU, we want to be able to offer those consumers that took that risk to take advantage of being able to refinance a conforming loan,” the FOA president said.

A quarterly report published by behavioral data analytics firm Sales Boomerang found that the frequency of borrowers searching for the phrase “cash-out” increased by almost 300% from Q2 to Q3. Meaning that “more cash-out refinance and HELOC activity [is expected] in the coming months,” the firm said in their report.

Dallas also said that apart from ADUs, manufactured housing is another viable options to help solve the affordable housing crises.

“All of these options will make housing more available,” he said.

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