How to Finance an ADU
Short answer: most homeowners pay for an ADU with savings, a home equity line of credit (HELOC), a cash-out refinance, or a renovation/construction loan that lends against the home's value after the project.
Common options
Cash/savings
Paying with savings avoids a new loan. Keep a reserve for unexpected project costs and other household needs.
HELOC
A home equity line of credit lets you draw on your equity as costs come due while keeping your existing first mortgage. Ask about rates, repayment terms and draw limits.
Home equity loan
A home equity loan provides a lump sum against your equity. Compare the payment, fees and terms with a line of credit.
Cash-out refinance
A cash-out refinance replaces your first mortgage with a larger loan and releases equity for the project. Compare the new rate and closing costs with your current mortgage.
Renovation loans
Renovation loans, such as Fannie Mae HomeStyle or FHA 203(k), may be an option for eligible ADU projects. Ask your lender about project eligibility and whether it uses the home's after-completion value.
Construction loans
Construction loans fund work in stages through draws. Ask how inspections, payments and the transition to a long-term loan work.
Questions to ask your lender
- Will they lend on the after-completion value?
- Can expected ADU rent help you qualify?
- How are draws paid during construction?
How we help
We provide a detailed written estimate and scope your lender can use.
FAQ
Can ADU rental income help me qualify for a loan?
Some lenders and loan programs allow part of expected ADU rent; ask your lender.
Is a HELOC or cash-out refinance better?
It depends on your current rate and equity; a HELOC keeps your existing first mortgage.
Do you offer financing?
We do not lend money, but we give a detailed estimate your bank can use.
Related services and guides
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