ADU Financing: Everything You Need to Know

Accessory Dwelling Units, or ADUs, are becoming increasingly popular in the Denver Metro Area and the Front Range. ADUs are a type of secondary housing unit that can be built on residential lots, either attached or detached from the primary residence. ADUs can serve as rental properties, guesthouses, or even additional living space for family members. However, financing an ADU can be a daunting task, especially for those unfamiliar with the process. Prospect 30 Eight Construction is here to help! Below, we will break down everything you need to know about ADU financing.

Types of Financing for ADUs

There are several ways to finance an ADU project, and the best option will depend on your individual financial situation. Here are some of the most common financing options for ADUs:

Home equity loan

If you have equity in your home, you can use it to finance your ADU project. Home equity loans typically have lower interest rates than other types of loans, and you may be able to borrow up to 80% of your home’s value.

Cash-out refinance

This option involves refinancing your existing mortgage and taking out cash to pay for your ADU project. Cash-out refinancing can be a good option if you have a substantial amount of equity in your home.

Personal loan

A personal loan is an unsecured loan that can be used to finance your ADU project. Personal loans typically have higher interest rates than home equity loans and cash-out refinancing.

FHA 203(k) loan

This loan is designed for homebuyers who want to purchase a property that needs repairs or renovations. An ADU project may qualify for a 203(k) loan if it is part of a larger renovation project.

Home improvement loan

Some lenders offer specific home improvement loans that can be used to finance ADU projects.

Factors to Consider When Financing an ADU

When considering financing options for your ADU project, there are several factors you should keep in mind:

Budget

It’s essential to have a realistic budget in mind before starting your ADU project. Be sure to factor in all the costs, including taxes and fees.

Interest rates

Interest rates can vary greatly depending on the type of loan you choose. Be sure to shop around and compare rates from different lenders.

Eligibility

Not everyone will be eligible for every type of loan. Be sure to check the eligibility requirements for each loan option.

Timeline

Some loan options may have longer processing times than others. If you need to complete your ADU project quickly, be sure to choose a loan with a fast processing time.

Repayment terms

The repayment terms for each loan option can vary greatly. Be sure to choose a loan with repayment terms that fit your financial situation.

Working with a Builder to Finance Your ADU

If you’re feeling overwhelmed by the financing process, consider working with a builder like Prospect 30 Eight Construction to help guide you through the process. At Prospect 30 Eight Construction, we have years of experience building ADUs, and we can help you navigate the complexities of ADU financing. We can also help you explore potential financing options and recommend lenders we trust.

Financing an ADU can seem daunting, but with the right guidance, it can be a manageable process. By understanding the various financing options available and working with a trusted builder like Prospect 30 Eight Construction, you can turn your ADU dream into a reality.

Since 2006, Prospect 30 Eight Construction has been building top-quality custom homes, home additions, and Accessory Dwelling Units (ADUs) throughout the Denver Metro Area and the Front Range. If you have any ADU Financing questions, please contact us for a free consultation.