People trying to refinance their mortgages to take advantage of favorable current market conditions might come to realize they have a problem with their house. A granny unit can be a wonderful opportunity to maintain a mortgage, drive affordability as part of the broader budget, however, if it’s not done in the right way, it can come back to be problematic. Here is what to know…

First things first mortgage companies must follow Fannie Mae/Freddie Mac guidelines. For our purposes, we’re going to talk about single-family residences with granny units, not multi-family properties. So if you have a single-family residence and you have good cash, credit and income, and equity in your home you can refinance your mortgage loan.

Financing a single-family residence with a granny unit should not be a problem with most mortgage companies. Here’s where things can become extremely problematic, more than one granny unit. More than one in-law unit coded as a single-family residence does not conform to Fannie Mae’s guidelines. Most extra granny units such as converting a garage to a granny unit or putting up a wall and creating another unit are not done on a permanent basis, they’re typically done off the record, as a result even if they’ve done in a workmanlike manner, and even if they’re done legally, for the purposes of getting a mortgage it does not conform. So if you have a single-family residence with a granny unit keep it that way adding an extra granny unit will more than likely make your property ineligible as collateral for the mortgage loan.

When selecting a mortgage company, be transparent tell them what you’re property is. One caveat to this conformity rule is the subject property is a legitimate multi-family home, a legal two, three or four-unit property.

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