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At ADU.Works we understand that every homeowner has their unique financial situation. Whether you want to build an ADU for your family, earn rental income, or create extra space, securing financing is crucial. With many people sitting on low interest rates for their primary homes, a refinance may not be an appealing option.
Our team is happy to work with you to ensure you have the plans, scope of work, and budget required to submit for loan documentation on construction loans.
There are multiple financing options you can explore to ensure flexibility when it comes to building your ADU:
A HELOC is typically the simplest way to finance an ADU, allowing homeowners to access up to 80-90% Loan-To-Value (LTV) of their primary residence. With a HELOC, homeowners can draw down the credit line as they need the funds and are only charged interest on the amount of credit used.
✓ Allows access up to 80-90% LTV of their primary residence.
✓ Credit line can be drawn down as funds are needed and only pay interest on the amount used.
A Fixed Rate Second Position Loan is a newer loan product that is based on the value of the home after an ADU is added. This loan product does not require refinancing of an existing loan and has terms of up to 20 years. The loan amount is received upfront, and there are no "draws" like a construction loan.
✓ Based on the value of the home after an ADU is added
✓ Does not require refinancing of an existing loan.
✓ Has terms of up to 20 years with the loan amount received upfront.
If you don't have much equity in your home or already have a loan value close to the conforming limit of $977,500, a Construction Loan could be a good option for ADU financing. The construction loan will cover the building costs. Once construction is completed, the construction loan rolls into an adjustable rate mortgage (ARM). Loans typically have interest-only payments during construction, with no interest due until the line is drawn down once the project starts.
✓ Covers building costs, with interest-only payments during construction
✓ No interest due until the line is drawn down once the project starts.
✓ Good option for those with low equity in their home or those with a loan value close to the conforming limit.
By using a Renovation Loan, homeowners can essentially kill two birds with one stone – financing their renovation project and mortgage together. Homeowners can receive up to 95% financing for their primary residence or 85% financing if it's an investment property. This Fannie Mae Homestyle loan allows the construction of detached ADUs.
✓ Allows financing of a renovation project (including ADUs) into the mortgage.
✓ Offers up to 95% financing of a primary residence or 85% of an investment property.
✓ The loan amount can be calculated based on the "future value" of your home once you add the unit.
A Cash-Out Refinance replaces your existing mortgage with a new home loan for more than you currently owe on your house. The difference goes to you in cash that can be used on guest house construction or other renovation. Homeowners must have equity built up in their home to use a cash-out refinance.
✓ Replaces an existing mortgage with a new home loan for more than the current house value.
✓ Equity built up in a home is required
A Home Equity Conversion Mortgage (HECM) is possible when at least one of the owners is 62 or older and the property is a primary residence. The owner can borrow up to 42% of the home at age 62, all the way up to 70% at age 86 or older. The loan is structured as a line of credit, and the borrower has access to the line with no fund control requirements.
✓ For homeowners who are 62 or older and the property is their primary residence.
✓ Borrow up to 42% of the home at age 62 and up to 70% at age 86 or older.
✓ Loan is structured as a line of credit with no fund control requirements.
As an ADU builder out to provide the best ADU services, we commit to help you:
Build you a beautiful and cost-effective ADU in the Bay area
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Provide only the best client service
Use only reliable and quality materials
Adhere to sustainable practices
Use our expertise to build ADUs that maximize your property space
Find the most cost-effective plan possible
Find out how you can finance your ADU project and start building your next home or investment!
