Building Wealth with an ADU: A Guide for Oregon Home Buyers

Introduction

As a lifelong Oregonian with about 10 years living on the island of Guam, I have watched the state’s growth and transformation over the years. I understand the unique character of our community and the opportunities that home ownership here can offer. At Eugene Mortgage Brokers, we’re committed to helping you maximize your investment, especially through the addition of an Accessory Dwelling Unit (ADU). Recent changes in zoning laws and lending guidelines have made it more accessible for regular working-class Oregonians to add an ADU to their property. This guide will walk you through the process and benefits of buying a home with ADU potential.

Understanding ADUs

What is an ADU?

An Accessory Dwelling Unit (ADU) is a secondary housing unit on a single-family residential lot. ADUs can be detached, attached, or even converted spaces within the primary residence, such as a basement or garage. They are fully functional living spaces, typically including a kitchen, bathroom, and sleeping area.

Benefits of ADUs

• Additional Income: Rent out the ADU to generate extra income.
• Increased Property Value: Enhance the overall value of your property.
• Housing Flexibility: Provide living space for family members, guests, or as a home office.
• Sustainable Living: Promote efficient use of land and resources.

Recent Changes in Oregon Zoning Laws

Statewide Housing Initiatives

In recent years, Oregon has taken significant steps to address housing shortages and promote affordable living options. The passage of House Bill 2001  and House Bill 2003 are pivotal in this regard.

House Bill 2001

Passed in 2019, this bill requires cities with populations over 10,000 to allow the construction of duplexes, triplexes, fourplexes, and ADUs in areas zoned for single-family homes.

House Bill 2003

This bill focuses on housing production strategies and requires cities to plan for future housing needs.

Local Zoning Adjustments

Cities across Oregon have adjusted their zoning regulations to comply with state laws and encourage ADU development. For example:

• Reduced Parking Requirements: Many cities have reduced or eliminated parking requirements for ADUs.
• Flexible Setback Requirements: Adjustments to setback requirements make it easier to find suitable locations for ADUs on existing properties.
• Streamlined Permitting Processes: Simplified and expedited permitting processes reduce the time and cost associated with building an ADU.

Lending Guidelines and Financial Considerations

Updated Lending Guidelines

Lending guidelines have evolved to support the construction of ADUs. Since 2023, several key changes have made financing an ADU more accessible:

• Increased Loan Limits: Higher loan limits allow borrowers to finance larger projects, including ADUs.
• Favorable Interest Rates: Competitive interest rates for loans intended for ADU construction.
• Flexible Loan Programs: Various loan programs, such as FHA 203(k) and Fannie Mae’s HomeStyle Renovation loans, are available to finance ADUs.

Financing Options

• Home Equity Loans: Utilize the equity in your existing home to fund the ADU construction.
• Cash-Out Refinancing: Refinance your mortgage to access cash for your ADU project.
• Construction Loans: Specific loans designed for new construction can be used to build an ADU.
• Personal Loans: Unsecured personal loans can be a quick way to obtain funds, though they may come with higher interest rates.

Steps to Buying a Home with ADU Potential

1. Identify Suitable Properties
   Look for homes with sufficient lot size and favorable zoning for ADU construction.
2. Consider factors like:
   – Lot size and shape
   – Existing structures and their conditions
   – Proximity to amenities and public transportation
3. Check Local Zoning and Building Codes
   Before purchasing a property, check the local zoning regulations and building codes to ensure you can build an ADU. This includes:
   – Maximum allowable size and height for ADUs
   – Setback and lot coverage requirements
   – Design and architectural standards
4. Secure Financing
   Work with a mortgage broker like Eugene Mortgage Brokers to explore your financing options. Pre-approval can streamline the purchasing process and give you a clear idea of your budget.
5. Plan Your ADU Design
   Engage with architects or designers experienced in ADU projects. Ensure your design complies with local regulations and meets your needs.
6. Obtain Necessary Permits
   Submit your ADU plans to the local planning department for approval. The permitting process may involve:
   – Site inspections
   – Plan reviews
   – Neighbor notifications (if required)
7. Start Construction
   Once you have the necessary permits, you can begin construction. Choose a reputable contractor with experience in ADU projects to ensure quality work.
8. Manage Your ADU
   After construction, decide how you will use the ADU. If you plan to rent it out, consider:
   – Setting a competitive rental rate
   – Marketing the unit
   – Screening potential tenants

Building Wealth with an ADU

Long-Term Financial Benefits

Building an ADU can provide long-term financial benefits, including:

• Rental Income: A steady stream of rental income can help offset your mortgage payments or fund other investments.
• Property Appreciation: Properties with ADUs tend to appreciate faster due to the added utility and potential rental income.
• Tax Benefits: ADU construction costs may qualify for certain tax deductions.

Case Studies and Success Stories

Many Oregon homeowners have successfully added ADUs to their properties, enhancing their financial stability and property value. Here are a few examples:

• The Jones Family in Portland: By converting their garage into an ADU, the Jones family generated an additional $1,200 per month in rental income.
• The Smiths in Eugene: Building a detached ADU in their backyard increased their property value by 20% and provided a comfortable living space for their aging parents.

Conclusion

Oregon’s progressive zoning laws and updated lending guidelines make it an ideal time for home buyers to consider properties with ADU potential. By following the steps outlined in this guide, you can take advantage of these opportunities to build wealth and create flexible living arrangements.

If you’re ready to explore your options for buying a home with an ADU, contact Eugene Mortgage Brokers today. Our team of experts is here to help you navigate the financing process and make your dream of owning a home with an ADU a reality. We Make It Easy!

If you’re ready to take the next step, we want to move at your speed.

Here are some ways you can get started:

• Answer some questions by clicking here
• Tell me your story here
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We love to meet with clients in our office whenever schedules allow but we can also meet by video and phone.

Lauren Hatmaker
Direct: 541-510-8428
Office: 541-972-8620
NMLS 1433297
Lauren@EugeneBrokers.com
www.EugeneMortgageBrokers.com