What Are Accessory Dwelling Units and How Can They Benefit You?
KCM • November 10, 2023
What Are Accessory Dwelling Units and How Can They Benefit You?
Maybe you’re in the market for a home and are having a hard time finding the right one that fits your budget. Or perhaps you’re already a homeowner in need of extra income or a place for loved ones. Whether as a potential homebuyer or a homeowner with changing needs, accessory dwelling units, or ADUs for short, may be able to help you reach your goals.
What Is an ADU?
As AARP says:
“An ADU is a small residence that shares a single-family lot with a larger, primary dwelling.”
“An ADU is an independent, self-contained living space with a kitchen or kitchenette, bathroom and sleeping area.”
“An ADU can be located within, attached to, or detached from the main residence. It can be created out of an existing structure (such as a garage) or built anew.”
If you're thinking about whether an ADU makes sense for you as a buyer or a homeowner, here's some useful information and benefits that ADUs can provide. Keep in mind, that regulations for ADUs vary based on where you live, so lean on a local real estate professional for more information.
The Benefits of ADUs
Freddie Mac and the AARP identify some of the best features of ADUs for both buyers and homeowners:
- Living Close by, But Still Separate: ADUs allow loved ones to live together while having separate spaces. That means you can enjoy each other’s company and help each other out with things like childcare, but also have privacy when needed. If this appeals to you, you may want to consider buying a home with an ADU or adding an ADU onto your house. According to Freddie Mac:
“Having an accessory dwelling unit on an existing property has become a popular way for homeowners to offer independent living space to family members.”
- Aging in Place: Similarly, ADUs allow older people to be close to loved ones who can help them if they need it as they age. It gives them the best of both worlds – independence and support from loved ones. For example, if your parents are getting older and you want them nearby, you may want to buy a home with an ADU or build one onto your existing house.
- Affordable To Build: Since ADUs are often on the smaller side, they’re typically less expensive to build than larger, standalone homes. Building one can also increase your property’s value.
- Generating Additional Income: If you own a home with an ADU or if you build an ADU on your land, it can help generate rental income you could use toward your own mortgage payments. It’s worth noting that because an ADU exists on a single-family lot as a secondary dwelling, it typically cannot be sold separately from the primary residence. But that’s changing in some states. Work with a professional to understand your options.
These are a few of the reasons why many people who benefit from ADUs think they’re a good idea. As Scott Wild, SVP of Consulting at John Burns Research, says:
“It’s gone from a small niche in the market to really a much more impactful part of new housing.”
Bottom Line
ADUs have some great advantages for buyers and homeowners alike. If you're interested, reach out to a real estate professional who can help you understand local codes and regulations for this type of housing and what’s available in your market.
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The 10 Best Markets for First-Time Buyers This Spring For a while, buying your first home hasn’t just felt hard. It may have felt out of reach. Not because you weren’t ready . Not because you weren’t trying . But because every time you ran the numbers, they didn’t work . That’s why so many first-time buyers stepped back. But after years of sitting on the outside looking in, this Spring could give buyers like you an opening again – especially in some markets. Metros Where Buyers May Have an Easier Time Breaking into the Market Zillow just released a list of the top 50 metros for first-time buyers this Spring. And here’s a quick snapshot of the top 10 (see chart below): According to Zillow, in these top-ranked markets, median-income households can afford 68% of all homes for sale . Let that sink in. Not long ago, it felt like you could barely afford anything. Now, you may actually have some options again. That doesn’t mean every home is suddenly going to fit your budget. But it does mean the door that felt closed for so many buyers is starting to crack back open. And in a number of cities, first-time buyers may finally be getting a shot at buying . Why This Is Starting To Open Up These cities are rising to the top not because of any one big change, but from a few smaller ones finally lining up. As Orphe Divounguy, Senior Economist at Zillow, explains: “ First-time buyers are finally seeing some light at the end of the tunnel. Affordability is still a challenge, but rising incomes, stabilizing prices and improving inventory are creating real opportunities in parts of the country. In the strongest markets for first-time buyers, they'll find more choices, less competition and a clearer path to homeownership than they've had in years .” Basically, three big things are working in your favor: More homes are hitting the market. Realtor.com says inventory is up 8.1% compared to last year. That gives you more choices, less pressure, and more chances to find a place that fits your budget. Price growth is moderating, so homes aren’t moving further out of reach as quickly. Some may even be falling back within your target price point. Incomes are rising. If you make more money, that can offset some of the affordability challenges too. And even though mortgage rates have been higher lately, that combination can still make a difference. As Mark Fleming, Chief Economist at First American , explains : “Income growth has outpaced house price growth for 19 straight months, boosting house-buying power even as mortgage rates remain elevated.” How To Find the Opportunities in Your Local Market But what if your city didn’t make the top 10 list, or even the top 50 markets? Here’s what you really need to remember. There’s going to be opportunities in every market, if you know where to look. Even in the same city, two buyers can have completely different experiences. And a big part of that is who they choose as their partner. The right agent knows how to find pockets of opportunity in any market. That could mean: A neighborhood where prices haven’t climbed as quickly A part of town with more inventory, or A new build community offering incentives so builders can sell their inventory So, even if your city didn’t make the list, that’s okay. There’s still an opening for you, you just need your agent to help you find it. Bottom Line For a long time, first-time buyers have felt stuck, waiting for their turn to buy. But for some buyers, this Spring might be the first time in a while where things start to feel more within reach again. Want to see which neighborhoods could give you the best shot at buying right now? Let’s talk.
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3 Must-Do’s for First-Time Home Buyers Buying your first home is exciting, but it can also be a little nerve-wrecking because it’s something you’ve never done before. And trying to think of everything you need to do can feel like a lot. But here’s the key. You don’t have to figure everything out on your own. And you don’t have to do it all at once. Just tackle it one thing at a time. Here’s a simple list of 3 main things you should focus on to help you get started. 1. Assemble Your Team: Don’t Do This Alone Buying a home is a team sport. And having the right professionals by your side can make a world of difference. Here’s who you need to find: A local real estate agent is your guide from the first showing to closing day. They’ll make sure you understand all the details along the way, so you feel confident in your decision. A trusted lender will walk you through loan options, monthly payments, and what’s realistic for your situation. That information is something you’re going to want early on. 2. Prep Your Finances: Set the Foundation First This is what determines what you can afford, how competitive you’ll be, and how confident you’ll feel when it’s time to make an offer. Here’s how to get ready: Check your credit score. Your credit score impacts the loan options you’ll qualify for and even the mortgage rate you’ll get. Knowing this number early gives you time to work on raising your score, if you want to. Save for your down payment and closing costs. Most buyers focus on the down payment , but closing costs matter too. Having savings set aside for both helps you avoid last-minute stress and surprises. Look into assistance programs. Many first-time buyers qualify for programs that’ll give their homebuying savings a boost. This can make buying possible sooner than you expect. Talk to a lender about mortgage options. Fixed-rate, adjustable-rate, FHA, VA , and conventional loans all work differently. Understanding the options helps you choose what fits your goals best. Get pre-approved. A pre-approval tells you what a lender would be willing to give you for your home loan. This’ll help you figure out your price range and set you up to move fast when the right home comes along. Figure out your budget. Your mortgage is just one part of homeownership. Budgeting for your utilities, home insurance , and everyday expenses and maintenance will help make sure your payment feels comfortable, not stressful. 3. Gather Your Documents: Save Time (and Stress) When you’re officially ready to kick off the buying process, lenders are going to need to verify your income, assets, and financial history. Having these documents ready-to-go upfront can speed up the process and reduce back-and-forth. Here’s what Bankrate says you need to prep: W-2s and tax documents (past 2 years). These show income stability and help lenders verify your earnings over time. Recent pay stubs (generally the past 1–2 months). Pay stubs confirm your current income and employment status. Bank statements (past 2–3 months). These show your savings, spending patterns, and where your down payment funds are coming from. Investment account statements (past 2-3 months). If you’re using investments as part of your financial picture, lenders may ask for these as well. Copy of your driver’s license. This verifies your identity and is required for loan processing. Residential history (past 2 years). Lenders use this to confirm stability and background information. Statements for any outstanding debts (past 2 months). Student loans, auto loans, and credit cards affect your debt-to-income ratio, so lenders will want to know about them. Proof of supplemental income. Bonuses, commissions, side work, or child support may count toward your income if documented properly. Note: the exact time frames and list of documents may vary lender to lender. This is just a general rule of thumb to help you get the ball rolling. Bottom Line Buying your first home doesn’t mean you have to have everything figured out. It just requires a plan. If you start with your finances, organize your documents, and surround yourself with the right people, you’ll be in great shape when the time comes to make a move. And if you want more information on anything in this list or just need help getting started, don’t hesitate to reach out.
