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ADU LAWS AND FINANCING

With the new state housing law SB9 and new finance options from

Freddie Mac, building your own ADU just got a lot easier. We have put together some  information that will help you in the decision process when it comes to having your own ADU on your property. 

If you have more question after reviewing this information give us a call, we can fill any of the blanks you might have.

SENATE BILL 9 THE NEW STATE HOUSING LAW

When Governor Gavin Newsom signed SB-9 into law on September 16, 2021 the state became only the second in the nation to eliminate “Single Family Home Only Zoning” in most areas, following Oregon, which did it in 2019. It is hard to overstate how big of a change this new law has made or will make in California. Nearly 2/3 of all residences in the state are single family homes. In addition, almost as much as 3/4 of the developable land in the state is now zoned only for single family housing.

Bottom line is that this law allows homeowners to create a duplex on an existing R-1 lot or subdivide an existing R-1 lot - creating an Urban Lot Split - in a Single Family Zoned (R-1) area. 

 

Here's both possibilities separately.

If you decide that you want to establish a second unit on your lot and create a duplex. What is allowed?

  • You’re allowed to do it only if the lot has only one existing primary dwelling unit and there are no other primary dwelling units on the same parcel
    You don’t need more than 4’ side or rear setbacks from property lines
    You don’t need parking if the lot is within 1/2 mile walking distance of a high-quality transit corridor or a major transit stop like a bus stop
    You have to comply with local zoning requirements when developing a duplex

  • Minimum size of each unit has to be at least 800 sq ft. (height, floor area ratios, lot coverage, etc.) but there are some exceptions to that

  • New ADUs may be permitted only if both principal dwelling units (existing or proposed) were/are legally built prior to the ADU application submission. In total, sites developed with two principal dwelling units may have one ADU converted from spaces within an existing residential building (JADU) and two detached ADUs. That essentially could result in five(5) units on the same lot. Two principal dwelling units, 1 JADU and 2 detached ADUs according to the LA County Regional Planning Memorandum


What is not allowed and what restrictions can apply?

  • You’re not allowed to add a new unit even on an existing R-1 lot if there is already an existing duplex (two) primary dwellings units legally there, because it would create three primary dwelling units (triplex) on the same lot.

  • You're in a high fire hazard zone

  • You're in the coastal zone

  • You're in a historic overlay zone

  • You're in a FEMA 100 year flood zone

  • There are a few other not very common restrictions

  • You're not allowed to sell the units separately similarly to any existing duplex


If you decide that you want to split your property into two, thus creating an Urban Lot Split. What is allowed?

  • You’re permitted to have a lot split if the lot split will not result in more than two (2) units, including ADUs and JADUs, per parcel for a total of four (4) units.

  • Building separation requirements do not apply as long as units meet building code safety standards.

  • You have to have a minimum of 1,200 sq ft for each lot.

  • Neither lot shall be less than 40% of the original lot size.

  • Applicants must sign Owner Occupancy Affidavit, acknowledging intent to live in one of the units created for a minimum of three years from the recordation of an Urban Lot Split. (This is a little vague. I intend to live there, but…?)

  • You don’t need parking if either lot is within 1/2 mile walking distance of a high quality transit corridor or a major transit stop, like a bus stop.

  • You are allowed to sell any of the newly created parcels with or without units on it.


When are you not allowed to split your property and what restrictions can apply?

  • You're in a high fire hazard zone

  • You're in the coastal zone

  • You're in a historic overlay zone

  • You're in a FEMA 100 year flood zone

  • There are a few other not very common restrictions

  • All of these new up-zoning laws are somewhat controversial measures, they have not been tested yet and I’m sure there will be many different interpretations by the different cities and municipalities around the state to implement them. I’ve seen it with the recent ADU laws. All these new up-zoning laws have the intent to ease the state’s chronic shortage of affordable housing. I get that but, although all of these new laws create a ton of new business for us engineers and designers, I’m not entirely sold on them and don’t believe that this is the right way to ease the California housing shortage.


I think that rather than push more people into the least affordable areas, perhaps it’s time to revisit suburban and even exurban housing. Over the last decade many projects have been held up because of regulatory entanglements and environmental and other lawsuits. Major developments like the Tapestry project in San Bernardino County where 15,000 new homes marketed to first time buyers, and the Tejon Ranch, located 70 miles from Los Angeles and slated for 35,000 homes could help relieve housing pressures on urban and inner ring suburban areas.

I don’t believe that up-zoning and overcrowding is the answer to the housing shortage and the way toward affordable housing. A professor at the University of British Columbia, Canada, for instance, has shown in a study that up-zoning, allowing more units in residential zones, has not resulted in less expensive housing in Vancouver, which is one of the most expensive cities in North America.

I hope this sheds a little light over this new SB-9 state law, of course things are a little fluid until we’ll learn more nuances and little tricks about it.

FREDDIE MAC RELEASES NEW ADU FINANCE OPTIONS

We are pleased to announce some great news from Freddie Mac that finally moves the needle on finance reform and opens up access to financing for more homeowners and homebuyers. So what’s changed – and how will it help?

First, some quick background: Freddie Mac (one of the ‘enterprises’ – the other one is Fannie Mae) was chartered by Congress in 1970 to help support the U.S. housing finance system and ensure a reliable and affordable supply of mortgage funds across the country. They do this by purchasing mortgages from lenders, and by creating specialized loan products for first-time homebuyers, lower-income homeowners, and others.

Summary of updates announced by Freddie Mac:

  • Homeowners who’ve built an ADU on their primary residence can now use a Freddie Mac Choice Renovation loan for a no-cash-out refinance at favorable terms to pay off the temporary funding source for ADU construction

  • More homeowners will qualify for these Freddie Mac loans because rental income from the ADU can now be part of their qualifying income

  • Loans can now be obtained not just for single homes with an ADU, but also for properties with 1-3 units plus one ADU

  • ADU federal visibility takes a giant leap forward, with the term itself now included in the glossary

  • Freddie Mac is a major purchaser of home mortgages. If Freddie Mac signals its willingness to purchase mortgages secured by homes with ADUs, and expands the borrower qualification terms, these changes will likely affect the loans and terms that many local banks can offer their customers.

  • While Casita has more items on our federal ADU finance wish list (for instance, allowing homeowners to use the rental income of a future ADU to help qualify for a loan to build it) this is progress to be thankful for, and to celebrate.

For more information:

https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/accessory-dwelling-units

Contact us today to get your ADU started 800.351.2969