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Unpermitted/Illegal In-Law Units; Baths; Kitchens – When Are They OK?

Every week we get transactions involving illegal or unpermitted bedrooms, bathrooms, in-law units, cottages or kitchens (often part of an in-law or cottage).

Illegal/unpermitted bedrooms are never an issue, as long as appraisers do not count them in the gross living area and give no value to them. Likewise, unpermitted bathrooms are usually treated similarly.

It is the unpermitted kitchens that give us a problem, as most lenders do not allow them.

The key for unpermitted bedrooms or bathroom units is that the appraiser states that such additions are “typical for the area” and that the unpermitted space is “built in a workmanlike manner”.

For an unpermitted in-law unit with a kitchen, we have a lender that will allow it to stand as long as: (1) No value is attributed to it; (2) It is deemed “typical for the area”; (3) It was built in a workmanlike manner; and (4) Comparable sales with in-law units are provided.

If those four criteria are met it seems we can push almost any addition through underwriting, even for FHA loans.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167