How to Finance Your ADU in 2023: A Step-by-Step Guide

Financing is one of the most important aspects to consider before building an ADU. While an ADU can be an excellent investment in the long run, the upfront costs can be daunting. Fortunately, various choices are available to help you make your ADU dreams a reality. This guide will review some of the most common financing options and help you choose the best one for your situation.


Home Equity Loan

One of the most common ways to get funds to build your ADU is through a home equity loan, which uses your home’s equity as collateral. Typically, you can borrow up to 80% of your property value minus any outstanding mortgage balance. This can be a good option if you have a good credit score and a steady income, as these interest rates are generally lower than other types of loans.


Cash-Out Refinance

Another choice for your ADU is to do a cash-out refinance. This involves refinancing your existing mortgage for a more significant amount than you currently owe and taking the difference in cash. This can be a good option if you have a good amount of equity in your home and are looking to take advantage of lower interest rates.


Personal Loan

Suppose you have a limited amount of equity in your home. In that case, a personal loan can be another option for financing your ADU. Personal loans are unsecured loans, meaning you don’t have to put up any collateral. However, interest rates are typically higher than other financing options because they are unsecured. You can qualify for a lower interest rate if you have a good credit score.


Home Improvement Loan

This kind of loan is another option to consider for financing your ADU. They are specifically designed for home improvement projects. They can be a good idea if you have limited equity in your property. Interest rates on home improvement loans can vary, so shop for the best rate.


FHA 203(k) Loan

If you plan on renovating your home extensively and building an ADU, an FHA 203(k) loan may be the right choice for you. These loans are designed for homebuyers who want to purchase a fixer-upper and make extensive renovations.

The loan covers both the property’s purchase price and the renovation’s cost. However, they can be more challenging to qualify for and have stricter requirements than other types of loans.


ADU Financing Programs

Finally, there are a variety of ADU programs available in some areas. These programs are specifically designed to offer low-interest loans, grants, or other financial incentives. If you’re interested in an ADU financing program, check with your local government or housing authority to see what options are available in your area.


In conclusion, building an ADU can be a challenge. Still, many options are available to help you make your dreams a reality. Whether you choose a home equity loan, a personal loan, or an ADU program, shop around to find the best rates and terms.


And remember, an ADU can be a significant investment in the long run, providing you with extra space and potentially even rental income. You can make the most money and lowest monthly payment to finance your ADU with 6 unique financing options ADU Resource Center got for you. Contact us, and you’ll see a solution to every situation.