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Why ADUs Can Be Used for Aging in Place – and How Reverse Mortgages Could Help

Why ADUs Can Be Used for Aging in Place – and How Reverse Mortgages Could Help
Why ADUs Can Be Used for Aging in Place – and How Reverse Mortgages Could Help

Accessory dwelling units (ADUs) offer a lot of potential for senior living, as evidenced by their growing popularity and statements from private companies and public agencies emphasizing their benefits for housing older adults.

In a recent case brought by the Los Angeles TimesA family chose an ADU after finding limited options and is now excited to provide a loved one with modern, age-appropriate living.

When a homeowner’s elderly mother—who lived alone in a Chicago apartment and was often isolated from the outside world due to the area’s weather—faced eviction from her home, the family encouraged her to move to the Los Angeles area to be closer to family and live in a warmer (and often more predictable) climate.

But when the apartment’s landlord announced that all units in the building were being renovated and all current tenants would be moving out, time began to run out for a solution. After finally receiving a senior living exemption from the State of California, the family began looking for a better solution. The solution, while imposing, was complete: an ADU.

“The lot may have been small at 3,500 square feet, but the dilapidated garage at the back had good access from the alley and a concrete slab that would have been convenient for a second apartment and a tenant,” the Times report said.

After hiring a local architect who understood the needs of the elderly, a new 650 square meter ADU was built four years later at a cost of around $400,000.

“The unit features a bedroom and an accessible bathroom with a frosted glass door that provides privacy and can accommodate a caregiver if needed,” the story says. “A full kitchen with a washer and dryer is made even more convenient thanks to a kitchen island on wheels that can be moved if it gets in the way.”

To meet the need for more housing, California has evolved its plans and even made exceptions to some of its building codes. San Jose, for example, allows homeowners to sell ADUs on their lots as first homes. In Los Angeles County, stormwater regulations that cause construction delays have been lifted for those who want to start small residential projects immediately.

The reverse mortgage industry has also recognized the potential of ADUs. While the future resident of such a home would not be able to use a product such as a Home Equity Conversion Mortgage (HECM) to finance an ADU on their own, a professional previously explained to HousingWireAccording to Reverse Mortgage Daily (RMD), a homeowner age 62 or older can take out a HECM loan and use the proceeds to finance the construction of an ADU for someone else.

“It’s excellent because someone will earn an income from the construction,” said Renee Konstantine, director of reverse mortgages at EstaR mortgage in San Diego, RMD said last year. “The proceeds are tax-free and will go toward construction. Then they get cash every month.”

However, getting a reverse mortgage to finance the construction of an ADU is not necessarily a piece of cake, she added.

“You have to work with (ADU-specialized) contractors first and foremost,” she said at the time. “They told me they know the people in their town, they know who they’re talking to and they know what’s required. And you absolutely have to let the contractor do the heavy legwork of construction and work with them every step of the way.”

Over and beyond Federal Housing Administration (FHA) established guidelines late last year for considering rental income in the origination of forward mortgages and the financial evaluation of HECM loans. The FHA expanded the definitions of eligible properties in the Single Family 4000.1 manual to include ADUs, as part of a comprehensive revision of that document on reverse mortgages earlier this year.