{"id":15906,"date":"2025-02-18T13:47:46","date_gmt":"2025-02-18T20:47:46","guid":{"rendered":"https:\/\/www.neighbor.com\/storage-blog\/?p=15906"},"modified":"2025-02-21T13:16:12","modified_gmt":"2025-02-21T20:16:12","slug":"adu-financing-options","status":"publish","type":"post","link":"https:\/\/www.neighbor.com\/storage-blog\/adu-financing-options\/","title":{"rendered":"ADU Financing: Can I Get a Loan for an ADU?"},"content":{"rendered":"\n

An accessory dwelling unit (ADU) is a great way to increase the value of your property<\/strong>, accommodate multi-generational living<\/strong>, or collect rental income<\/strong>. <\/p>\n\n\n\n

However, regardless of your ADU’s potential to make money<\/a> or meet your family’s space needs, you must first determine how to pay for it. <\/p>\n\n\n\n

Fair warning: <\/em>ADU financing won’t look the same for all homeowners<\/strong>. <\/p>\n\n\n\n

But don’t worry–we’ll take an in-depth look at your ADU financing options, what it takes to qualify, and what you can expect to pay. <\/p>\n\n\n\n

Can I Get a Loan for an ADU? <\/h2>\n\n\n\n

A loan for an ADU is entirely possible, but lenders evaluate key factors before approval. Your credit score<\/strong>, typically 620+ <\/strong>(with 680+ preferred<\/strong>), and debt-to-income<\/strong> (DTI) ratio (usually under 43%<\/strong>) are the two most important factors in securing financing for an ADU. <\/p>\n\n\n\n

If you have enough home equity and your first mortgage is not too large<\/strong>, you may qualify for a home equity loan, HELOC, or cash-out refinance.  <\/p>\n\n\n\n

For those without sufficient equity<\/strong>, a construction or renovation loan is an additional option. The construction or renovation loans base borrowing limits on future property value. <\/p>\n\n\n\n

(Note: While some homeowners opt for personal loans, these often come with higher interest rates and shorter terms–so tread lightly). <\/em><\/p>\n\n\n\n

The right financing option<\/strong> ultimately depends on your existing mortgage<\/strong>, borrowing power, and long-term financial goals. <\/p>\n\n\n\n

ADU Financing Options (Interest Rates and Loan Terms)<\/h2>\n\n\n\n

Interest rates vary depending on the accessory dwelling unit finance option you choose. Most homeowners find the best rates with a home equity loan, which is typically in the 5-9% range.<\/strong> Personal loans are the most expensive option from an interest rate perspective. <\/p>\n\n\n\n

Estimated Monthly Payments for a $100,000 Loan (15-Year Term)<\/h3>\n\n\n\n
Financing Option<\/strong><\/td>Approx. Interest Rates<\/strong><\/td>Typical Loan Terms<\/strong><\/td>15-Year Estimated Payment<\/strong><\/td><\/tr>
Home Equity Loan<\/strong><\/td>5% – 9%<\/td>10–30 years<\/td>$790.79 – $1014.27<\/td><\/tr>
HELOC (Home Equity Line of Credit)<\/strong><\/td>6% – 10%<\/td>10–15 years (draw period) + repayment period<\/td>$843.86 – $1074.61<\/td><\/tr>
Cash-Out Refinance<\/strong><\/td>5% – 8%<\/td>10–30 years<\/td>$790.79 – $955.65<\/td><\/tr>
Construction Loan<\/strong><\/td>6% – 10%<\/td>Varies<\/td>$843.86 – $1074.61<\/td><\/tr>
Renovation Loan<\/strong><\/td>6% – 10%<\/td>10–30 years<\/td>$843.86 – $1074.61<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Note:<\/em><\/strong> Interest rates vary based on credit score, debt-to-income ratio, and market conditions.<\/em><\/p>\n\n\n\n

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List your unused space<\/h3>\r\n

People are earning $1,000s per year from their garages and outdoor space.<\/p>\r\n <\/div>\r\n

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Approve your renters<\/h3>\r\n

You're in control. Approve who rents and the hours of access.<\/p>\r\n <\/div>\r\n

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Get paid monthly<\/h3>\r\n

Sit back and collect automatic payments each month.<\/p>\r\n <\/div>\r\n <\/section>\r\n