What are ADU Financing options?
Once you’ve learned about Accessory Dwelling Units and expected ADU costs, you’re ready to tackle a crucial step: deciding how to build and finance a granny flat. Whether you’re building an ADU for family, securing rental income or creating extra space, making the financing work is essential.
- If you have equity in your house ⇒ best path would be a Line of Credit on the house
- If you don’t have equity in your house, but your current loan value is less than $550K ⇒ a Homestyle Renovation Loan could cover the construction of the ADU by using the future value of the property with the ADU, up to a total loan value on the home of $753K (e.g. if you already have a $500K mortgage on the house, there is potential to get a $250K renovation loan for the ADU construction)
- If you don’t have equity in your house but you have a FICO score of 720+ ⇒ you could consider a 2nd Position Construction Loan that will cover the building costs (and is not limited on loan value like the Homestyle option). Once the ADU is completed, you can refinance into a single loan.
Read on for more on each of these options, plus other paths for ADU financing in California. We’re happy to work with you and your lender to ensure you have the plans, scope of work, and budget required to submit for loan documentation.