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What are my ADU loan options?

ADU loans don’t have a single one-size fits most financing mechanism, but we see each of the following options used to finance ADUs:

  • HELOC / home equity loan (home equity line of credit)

    • Home equity loans are essentially second mortgages that lenders give to you because you have equity in your house that their willing to lend against, even if you have a first mortgage

    • A HELOC (home equity line of credit)  - this is typically a  line of credit based on the amount of equity you still have in your house 

  • Cash out refi - in this situation, you’re refinancing your first mortgage and the amount above the amount above the pay-off amount for the original loan goes to the borrower

  • Personal loan - this is an unsecured loan that is based on your strength as a personal borrower. Amounts tend to be smaller, rates higher, and payback periods shorter than secured loan options

  • Chattle loan- these are essentially loans that are secured by the manufactured home, but not the land underneath. They tend to be shorter term than conventional mortgage with somewhat higher rates. 

  • RV Loan - these only work for RVs or often tiny homes. They are secured loans, but typically have worse rates than home mortgages

  • Construction loans - these are typically administered by banks and credit unions and will usually require them to a. approve your builder b. review your plans and budget and c. have an appraisal done to make sure the after build costs are consistent with their LTV (loan to value limits). These are typically short term interest only loans that become or get financed into long term loan programs. They are really structured for new construction but can be used for adu’s sometimes.

  • Government programs - these programs vary a lot in scope, but often aim to help lower or middle income people afford to build ADUs. Often they have small loan amounts, but very competitive rates.

Loan Type Typical Term Length Typical Max Amounts Speed Of Underwriting Rates
HELOC Up to 30 years (including draw and repayment period) Based on equity in the home, often up to $500k Can be fast as in days, but can be slower if appraisal is needed Relatively strong
Home Equity Loan Up to 30 years Based on equity in the home Can be fast as in days, but can be slower if appraisal is needed Relatively strong
Cash Out Refi Up to 30 years Based on home value, could be millions Typical mortgage time: 30-60 days Typically the best
Personal Loan Up to 10 years Up to $100k for those who qualify Very fast - days Worse than most other options
Chattle Loan Up to 25 years Based on the cost of the structure Faster than conventional mortgages Typically worse than most other secured loans, but better than unsecured loans
RV Loan Up to 20 years, but typically 10-15 years Often up to $500k Fast Better than personal loans typically
Construction Loan Up to 30 years Based on home value, could be millions Relatively slow: multiple months Typically pretty good - only a bit worse than a normal loan refi typically
Local Government Programs Depends Depends, but often low (<$100k) Depends, can sometimes be very slow Depends but often below market rate