The Rise of Accessory Dwelling Unit Construction in Seattle, WA

November 9, 2023
Last updated:
November 9, 2023
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According to a Seattle Times report published earlier this year, there were more accessory dwelling units (ADUs) built in 2022 than detached single-family homes.

That was the first time in Seattle’s history that ADUs outpaced single-home construction, underscoring the rising popularity of “granny flats” and other accessory dwelling units.

The surge in Accessory Dwelling Unit construction in Seattle partly stems from regulatory overhaul. In short, the city has made getting accessory dwelling units approved easier and faster to help ease the ongoing housing shortage.

How Accessory Dwelling Unit Construction in Seattle is Defined

An accessory dwelling unit, also known as an in-law unit, granny flat, or secondary suite, is a smaller, independent residential dwelling unit on the same lot as a single-family home. ADUs can be attached to the main house, detached in the backyard, or converted from a garage or basement.

That’s a standard definition. The City of Seattle has its own definition and divides these properties into two main categories.

According to the Seattle Department of Construction & Inspections: “an accessory dwelling unit (ADU) is a separate living space within a house or on the same property as an existing house.

They state that ADUs are only legal when established through a permit process, similar to those used for detached single-family homes.

In Seattle, there are two main types of accessory dwelling units:

  • When the ADU unit is part of the “main” home, it’s called an attached accessory dwelling unit (AADU).
  • When the unit is on the property but not within the home, it’s labeled as a detached accessory dwelling unit (DADU) or backyard cottage. So-called “tiny houses” on foundations also fall into this category.

Accessory Dwelling Unit Construction Surges With Growing Popularity

As mentioned above, the construction of Accessory Dwelling Units (ADUs) outpaced regular single-house construction in Seattle in 2022. That’s based on a report presented to the City Council earlier this year.

The surge in Accessory Dwelling Unit construction in Seattle began in 2019 when the city reformed its regulations to encourage the development of these units. City officials realized that these properties could increase housing and diversify living options in Seattle neighborhoods typically dominated by single houses.

Last year, the city saw a remarkable increase in ADU permits. Nearly 1,000 accessory unit permits were granted, compared to 280 permits in 2019. That marked a 250% increase in accessory dwelling unit permits.

The report also showed that Seattle ADUs are springing up in various areas, including suburban-style zones previously closed to housing growth. Many new ADUs are being developed with new houses, forming three-unit packages resembling townhouses.

Accessory dwelling units are also added behind existing houses, often called backyard cottages.

Lawmakers in Seattle continue to consider bills to reduce restrictions on ADUs and other “missing middle” housing in local communities. But not everyone agrees on the subject.

Proponents of these bills use Seattle’s ADU construction as evidence of the positive effects of policy changes on the city’s tight housing supply. On the other hand, opponents raise questions about the affordability of these new housing options and the potential impact of increased density on their neighborhoods.

Rental Income Can Now Be Counted for FHA Loans

In a separate but related development, the Department of Housing and Urban Development announced last month that owners of ADUs can use the rental income when qualifying for an FHA loan.

In October 2023, HUD announced a new policy that allows mortgage lenders to count up to 75% of the estimated rental income from accessory dwelling units (ADUs) when underwriting FHA loans. Effective immediately, this change is expected to make it easier for homeowners with ADUs to qualify for Federal Housing Administration (FHA) loans.

Before this policy change, rental income from ADUs was not typically considered when qualifying borrowers for FHA loans. That made it harder for those homeowners to qualify for FHA financing, even if they had a strong credit history and could afford the monthly mortgage payments.

According to Sarah Edelman, HUD’s Deputy Assistant Secretary for Single Family Housing:

“The new policies provide greater flexibility for using rental income from ADUs, which will help more borrowers qualify for FHA-insured financing on homes with ADUs. We’re pleased that we’ve had such widespread support from the housing industry, which has helped us deliver this meaningful solution for the nation’s homebuyers.”

Helping to Ease Seattle’s Housing Shortage?

Like everything construction and zoning-related, accessory dwelling units often lead to a spirited debate among city planners and residents. But they also provide some distinct advantages, especially in a housing market like Seattle, which continues to experience an inventory shortage.

Here are some of the potential benefits of ADUs in Seattle:

Increased housing supply: ADUs can help to increase the supply of affordable housing in Seattle communities that desperately need it. By adding more housing units to existing neighborhoods, ADUs can reduce the cost of rent and make it easier for people to find affordable places to live.

Affordable housing: ADUs are often more affordable to build and rent than traditional single-family homes. These units can be built on smaller (or existing) lots and do not require as much infrastructure as traditional detached homes.

Environmental benefits: ADUs can help to reduce traffic congestion and greenhouse gas emissions by providing more housing options close to jobs and amenities. Accessory units can be built on already-developed land, maximizing available space.

Diverse Housing Types: ADUs come in various forms, such as granny flats, garage conversions, or standalone cottages, adding diversity to the housing stock within a community.

Financing Your ADU: Navigating Loan Rates and Options

Understanding ADU loan rates is essential for homeowners aiming to enhance their property with an Accessory Dwelling Unit. The journey begins with grasping the significance of these rates and how they can impact the overall cost of your ADU project. While the upfront costs can appear daunting, the recent shift in the lending landscape has introduced more accessible, competitive loan rates for ADUs, reflecting their increased popularity.

Lenders acknowledge their long-term value as the demand for these innovative living spaces grows. This recognition is translated into more attractive loan terms tailored specifically for Accessory Dwelling Unit construction in Seattle.

Homeowners can benefit from these evolving financial products, securing an Accessory Dwelling Units loan with conditions that align with their financial realities and the projected value that an ADU adds to their property.

Taking the step to develop a granny flat or backyard cottage is now more feasible than ever. However, it’s imperative for homeowners to diligently research their financing options or seek guidance from financial advisors.

Finding the best ADU loan rates can make all the difference, ensuring your new addition is a worthwhile and affordable investment. An informed approach to securing your loan will lay a solid foundation for your ADU project and ensure long-term satisfaction.

VA Loan Lenders and ADU Financing for Veterans

Veterans and military service members exploring the addition of an Accessory Dwelling Unit to their properties have unique opportunities through VA Loan Lenders. These specialized lenders understand the nuances of VA loans, which can be a game-changer for financing ADUs.

VA loans often provide favorable terms, such as zero down payment and the absence of private mortgage insurance, which can significantly lower the upfront costs associated with ADU construction. It’s a pathway that recognizes the service of military members by facilitating easier access to affordable housing solutions.

Engaging with VA Loan Lenders can open the door to bespoke financing options that align with the construction of ADUs. These lenders can navigate the specific regulations and requirements of a VA loan for an Accessory Dwelling Unit, ensuring that veterans utilize all the advantages they’re entitled to.

This can include guidance on including the projected rental income from an ADU to qualify for a loan. This recent policy change has made it even more beneficial for veterans.

Moreover, working with an Accessory Dwelling Units lender who is well-versed in these projects can provide veterans with a clearer understanding of the potential return on investment these units offer. These lenders play a critical role in designing a space that meets the criteria for VA loans to aligning the construction with long-term property value enhancement.

Veterans considering ADUs should consult with a VA Loan Lender to ensure they receive the most comprehensive financial benefits. They may also be able to access an ADU loan calculator to determine what loan payments and total costs will look like over the life of the loan.

In summary, the rise of Accessory Dwelling Unit construction in Seattle is a testament to the city’s innovative approach to tackling housing shortages, offering many benefits, including increased affordability, diversity in housing options, and environmental advantages. With more accessible ADU loan rates and specialized options like VA loans for veterans, financing these structures is becoming increasingly attainable.

Whether considering a granny flat, a backyard cottage, or a garage conversion, now is an opportune time to explore your options. If you’re ready to take advantage of the potential that ADUs offer, we invite you to contact our team of experienced lenders to find an Accessory Dwelling Unit loan program.

We’re here to guide you through the loan process, ensure you secure the best possible rates, and help you make your ADU project a reality. Contact us today to start your journey towards expanding your home’s potential with an ADU

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