Why ADUs can be used for aging in place — and how reverse mortgages might help

Accessory dwelling units (ADUs) have a lot of potential for aging in place, as evidenced by their growing popularity and statements from private companies and public officials alike that emphasize their utility for housing seniors.

In one recent instance highlighted by the Los Angeles Times, one family turned to an ADU after finding limited options and is poised to see a loved one live in a modern, age-appropriate setting.

When a homeowner’s elderly mother — who lived alone in a Chicago apartment and was often isolated due to the area’s weather — found herself pushed out of her dwelling, the family encouraged her to move to the Los Angeles area to be closer to family and to live in a warmer (and often more predictable) climate.

But when the apartment’s landlord declared that all units in the building would be renovated and force all current tenants out, the clock began ticking for a solution. Ultimately, after gaining a senior living waiver from the state of California, the family sought to find a better arrangement. The solution was imposing but complete: an ADU.

“The lot may have been small at 3,500 square feet, but the falling-down garage in the back had easy alley access and a concrete pad that would be convenient for a second dwelling and tenant,” the Times report stated.

After enlisting a local architect who understood the needs of aging, a new ADU of 650 square feet was constructed after four years at a cost of roughly $400,000.

“The unit features one bedroom and an accessible bathroom with a frosted glass door that offers privacy and can accommodate an attendant if necessary,” the story reads. “A full-sized kitchen with a washer and dryer is made even more convenient thanks to an island on wheels that can be moved if it’s in the way.”

To accommodate the need for more housing, California has been evolving and even making exceptions to some of its regulations governing the structures. San Jose, for instance, is allowing homeowners to sell ADUs on their properties as starter homes. In Los Angeles County, stormwater regulations that cause construction delays have been lifted for those seeking to immediately commence small-scale residential construction projects.

The reverse mortgage industry has also taken notice of the potential for ADUs. While the eventual occupant of such a dwelling would not be able to use a product like a Home Equity Conversion Mortgage (HECM) to fund an ADU on their own, one professional previously explained for HousingWire’s Reverse Mortgage Daily (RMD) that a homeowner age 62 or older could take out a HECM loan and use its proceeds to fund the construction of an ADU for someone else.

“It’s excellent because of the income someone will receive by having it built,” Renee Konstantine, reverse mortgage division director at EstaR Mortgage in San Diego, told RMD last year. “The proceeds are non-taxable that they’re using to build it with, and then they’ll receive monthly cash.”

But it’s not necessarily smooth sailing to get a reverse mortgage to fund the construction of an ADU, she added.

“You have to work with [ADU specialist] contractors, primarily,” she said at the time. “They told me they know the people down there in their local city, they know who they’re talking to and are familiar with what is required. And you definitely have to let the contractor do that heavy leg work for the building side of it, and work together with them each step of the way.”

On top of this, the Federal Housing Administration (FHA) established guidelines for the consideration of rental income in underwriting forward mortgages and performing the financial assessment for HECM loans late last year. The FHA included the addition of ADUs to the definitions of eligible properties in the Single Family 4000.1 Handbook, part of a wide-ranging reverse mortgage revision to that document earlier this year.

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