It takes a lot of time for us to decide whether or not we need to build an Accessory Dwelling Unit on our property land, and one of the biggest questions that helps us to make this decision is about your financing options and possibilities.

Hence, it would be extremely helpful for you to learn about those financing options that you have, especially in the case that every answer to all of your concerns says that you need to build an ADU, and the only problem that you have is related to budget issues.

Read this article further and solve your financing problems with its help!

Financing Options Available to you

Fortunately, there are lots of opportunities for you to get the amount of money that you need in order to build an ADU, which means that it does not necessarily mean that you should postpone the project so that it would be implemented only with your own money.

Therefore, you might want to take a look at the following list of financing options and decide on the one that you could use for your ADU projects:


Home Equity Line of Credit, or HELOC, is one of the most popular options these days among those who need some extra money to build an ADU.

Basically, this type of credit would be made based on your equity and then divided into two parts, the one during which you can draw the money and the one during which you would have to return the loan. 

HELOC is an extremely convenient loan option, especially because you would only need to pay interest for the part of the loan that you have used. In addition, the period for which the loan would be given to you is quite big: on average, your HELOC loan would exist for around ten years.

What is more, the payments that you would have to make back to your lender are usually lower than the ones that you could receive from your tenants, meaning that you would even have a chance to keep some of that profit for yourself!

Cash Out Refinance

Another great option that is somewhat similar to HELOC is called Cash Out Refinance. In comparison with HELOC, this type of funding replaces your current mortgage, therefore allowing you to use the difference that you receive in cash for funding your ADU project.

You can benefit from this option in cases where your home equity is relatively big or you have current interest rates that are similar to or higher than the ones that you would receive from Cash Out Refinance alternative.

Renovation Loans

In case your home equity is not enough for a decent HELOC or Cash Out Refinance option, you could also try to get a renovation/construction loan that would not use your dwelling as collateral.

However, no collateral often means higher interest rates as well as stricter credit and income conditions for you to receive a renovation loan.

Anchored Loans

Another possibility for those of you whose home equity is not big enough to receive the amount of money necessary to build an ADU is called an anchored loan.

This type of funding works almost the same as HELOC or Cash Out Refinance options: you still will be given two time periods, the one during which you use the money and the one when you would need to return them back; however, in case of anchored loans, in the latter period, you would pay off the debt based not on the initial value of your property, but on the new one that includes a new ADU.

What is more, your interest rates would not change once you have received them, meaning that it is absolutely safe for you to use this option, especially when knowing that you are capable of paying the loan off!

Funding Alternatives

In addition, there will also be alternative options to the ones described above that you can consider in the case that they do not appeal to you or you cannot receive them from any lender.

For instance, you could try to borrow money from your family and friends. We often are too shy to even consider this possibility, but it is often the case that our close ones, knowing that we are trustworthy people, will gladly lend the money for the amount of time that you need it.

A personal loan could also be used for ADU construction purposes, which is why you should also consider them when all other choices more directly related to ADU projects did not work out. In addition, you could think about using your retirement or investment money, as well as about selling another piece of property that you have and currently do not use.

Nowadays, there is also a possibility for us to receive a loan from private lenders that do not work directly with any big banking organizations. It might be a risky choice, but sometimes a necessary one after all other possibilities were considered and tried out.

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