Construction Loan for an ADU
Home Equity Loan
One of the most common approaches is a home equity loan. If you own enough of your property outright (generally at least 10-20%) and it’s deemed valuable enough, a bank will allow you to borrow against that property up to an agreed-upon amount — they’re not going to let you borrow a million bucks against a home that’s worth half a million. As with any, an ADU loan has interest payments involved, and since your property is your collateral, if you default on it, it means foreclosure.
Another option is a cash-out refinancing of your mortgage. Instead of allowing you to borrow in small chunks when needed, refinancing provides a lump sum payment, which in turn gets added back on to your monthly mortgage payment.
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One of the many benefits of building an accessory dwelling unit is that it increases your property value, which makes ADU construction loans another viable option in some cases.
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You’ve got a few choices, for how to finance an addition on your own, each of which is going to cost you money, either upfront or long-term. It can be daunting — but remember what we said about working with the right team? Elizabeth Alejo is here to relieve you of all the risk, hard work, and financial burden.