Regs for “Garage Conversions & Un-Permitted Additions”Daniel Dobbs2023-05-26T08:52:45-07:00
With housing in SoCal becoming more scarce and more expensive; many cities have begun permitting “granny flats” which are most often converted garages and patio enclosures.
Issues arise when a home is refinanced, bought or sold if renovations are not done properly.
Get the Lowest Interest Rate, Fees, and Fastest Service
YouTube – Straight Talk Lending – Daniel Dobbs
Below are the regulations, (Fannie/FHA/VA) outlining the specifics of the renovation process which will help agents advise their clients (either buyers or sellers) so your escrow can close in time and with a minimal expense.
All of the following conditions are required to allow a garage conversion without permits for all financing:
· If a garage was converted without a permit, the appraiser must show the value as a garage, not as a converted room.
The appraiser must also estimate a cost to cure for re-conversion back to a garage.
· If the garage is converted to living space with no extra plumbing or electrical work, no permit is required if the appraiser indicates it was completed in a “workman-like manner”, the comparables support the value, and the lack of car storage is not prohibited by local ordinances.
· If the appraiser can obtain comparables that are the same as the non-permitted living space, no adjustment to the property value is necessary.
If the comparables do not have a similar living space the room must be valued based on its original use.
This requirement applies to family rooms and patio enclosures as well.
However, if the above requirements for garage conversions are not met, permits are required unless the loan meets the unpermitted addition requirements as listed in the Lending Product Profile.
Additionally, if permits are specifically required by the purchase agreement, sales contract, etc. for the conversion, then they must be provided.
Unpermitted Additions
· The subject addition complies with all lending guidelines
· The quality of the work is described in the appraisal and deemed acceptable (“workmanlike quality”) by the appraiser
· The addition does not result in a change in the number of units comprising the subject property (e.g. a 1 unit converted into a 2 unit – regardless of how the appraiser classifies the property with the addition, improvement or conversion)
· If the appraiser gives the unpermitted addition value, the appraiser must be able to demonstrate market acceptance by the use of comparable sales with similar additions and state the following in the appraisal
· If Non-Permitted additions are typical for the market area and a typical buyer would consider the “unpermitted” additional square footage to be part of the overall square footage of the property.
· The appraiser has no reason to believe the addition would not pass inspection for a permit.
Editor’s Note: Although Fannie / VA and FHA all allow for conversions, many lenders with “overlays” and will not lend on these properties.
“Overlays” are additional lending guidelines that lenders require in order to satisfy their underwriters and Wall Street investors!
Typically “depositories” (credit unions and banks) as well as so called “direct lenders” are the type of lenders who WILL NOT LEND!
The problem agents often encounter is MLO who work in these institutions are ‘newbies” supervised by 1 senior MLO and will just take the application and slap them up against the wall, so they can continue to justify their small salary.
That’s when buyers, sellers and (especially) agents suffer.
So ask for the lending institutions “conversion guideline”s before you write a purchase contract!
Sales Start with Service!
Call Me to Pre-Qual Your buyers
I hope this post helps you earn commissions!
Copywrite © August, 2018 Daniel Dobbs
All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator.
