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Industry Shifts Providing More Support for Multi-Family and Multi-Generational Housing

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While the additional ADU income has always been a desired perk to many buyers, they can now actually use it to drive buying power.

There are not enough homes available to meet the demand of the population needing housing. Our very own City of Flagstaff has identified this and considered it an emergency. Their 10-year plan, announced in 2022, includes the goal to create or preserve 7,976 housing units by 2031. With our land-locked economy, that large of a unit creation will likely take a fair amount of creativity. Luckily, national policymakers are working ahead of us in this round. Multi-family and multi-generational opportunities are only increasing and stand to play a big part in solving our inventory crisis.

The Trend

Buyers purchasing multi-generational housing saw 10-year spikes in 2020 and 2022. A study by the National Association of Realtors cited the top leading reasons as 1. Cost savings 2. Wanted a larger home that multiple incomes could afford together and 3. Caring for older or younger family members.

Policies Change to Accomodate

We’ve seen more changes in the last 24 months on lending policies that impact multi-unit and multigenerational housing than we’ve seen in the last decade. Last year, Freddie Mac announced an update to the Accessory Dwelling Unit (ADU) guidelines, where under certain circumstances they will allow ADU income to help a buyer qualify for their purchase. While the additional ADU income has always been a desired perk to many buyers, they can now actually use it to drive buying power. Whether it’s then renting to family or simply driving qualifying opportunity, this is a significant change. Before, the property had to be an official multi-unit to use any additional income for qualifying (residential mortgages consider two to four units as multi-unit).

A barrier of entry to multi-unit on conventional financing was that on a primary residence purchase, it historically required a minimum of 15% down on two-unit properties and 25% down on three- to four-unit properties. This was a much higher requirement than the 3-5% down required on a single unit. As of Nov. 18, Fannie Mae will accept as low as 5% down on two- to four-unit properties across the board. Keep in mind that buyers are able to use a portion of comparable market rents, as suggested by an appraiser, to then qualify for a two- to four-unit property.

Knowledge is Power and Flexibility is Key

It’s no secret this town is expensive, and it’s already required most, if not all, residents to make financial and housing trade-offs. While many may have not initially thought of having Mom and Dad in the unit next door or your sibling renting your ADU or even just the small entrepreneurial step forward on buying a multi-unit for your first home so that you can qualify for that home – talking to a local mortgage lender and doing a little outside-the-box thinking may just open some multi-family or multigenerational housing solutions in your own situation! FBN

By Chris Hallows

For additional information or to schedule an appointment, visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.

Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.

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