Online Exclusive
In this webinar, we speak with Lindsay Moon, a loan officer and builder specializing in ADU financing, to unlock the secrets to smart ADU financing. Read the highlights below.
ADU Financing Options
Lindsay laid out the primary options that homeowners have for financing their ADUs.
1. Refinancing Primary Mortgage
- Good option for those with higher-rate mortgages or recent buyers.
- Products like HomeStyle and RenoChoice allow buying a home and adding an ADU in one loan.
- Downside: not popular with homeowners holding low-interest primary loans.
2. HELOCs & HELOANs (Second Mortgages)
- Preserve your low-rate first mortgage.
- HELOCs = variable rate; HELOANs = fixed rate.
- Current interest rates typically 7.5%–10%+ depending on credit/LTV.
- Funds are not controlled-release — you decide how to use funds.
3. Reverse Mortgages & Reverse Seconds
- For homeowners 62+ years old.
- No monthly mortgage payments; interest accrues on the back end.
- Helpful for seniors with low income but high home equity.
4. ARV HELOC (After-Repair-Value)
- Lets you borrow based on future value of property after ADU is built.
- Borrow up to 95% of projected value.
- Requires permit-ready plans, GC approval, and appraisal.
- Converts to a standard line of credit after construction.
5. Construction Loans
- Short-term, controlled-release funds — not preferred for most primary residences.
- Used more for investment properties or when no equity is available.
- Often come with higher costs and administrative friction.
6. Personal Loans
- Also an option but typically used to supplement, not fund entire project.
- Often higher interest rates and limited dollar amounts.
Additional Tips
- Start financing conversations early, even during the feasibility phase.
- Pre-approval is crucial for understanding budget and options.
- Consider working with an independent mortgage broker who can shop multiple lenders.
- Refinancing post-construction can lower long-term costs once new ADU value and rental income are in place.
