Get Ready to Finance your ADU

Wondering how to finance an ADU? From HELOC to Equity Loans, here’s a breakdown of all the different ways to finance your project. Let’s find out together.

Financial ADU

As you may have heard, thousands of homeowners across California are investing in the property they already own by building Accessory Dwelling Units.

By: Eliana Lerma

Investing in your home by building an ADU will not only provide a return on your investment, but it is sure to create a life-long supply of passive income and exponentially increase your property value. Exciting stuff, right? Sure it is, but you may be wondering, “How do I pay for it?” Good question! Many homeowners feel overwhelmed with options, and unless you have a generously wealthy uncle or a stack of cash buried in the yard, you’ll need to consider all of your ADU financing options to make the right choice for your personal financial situation. If you keep reading, I can give you a simplified rundown of your options and help you make the right decision for your project.

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What is an ADU?

A home equity line of credit is an option for you if you have a current mortgage with equity in your property. With this loan you will retain your original mortgage and take out a Home Equity Line of Credit.  A good way to think about this is a second mortgage in the form of a credit line. Your line of credit amount will be calculated based on the following formula: 80-90% of the appraised worth of your property minus the amount you owe on your current mortgage. You will only pay interest on the amount you have withdrawn. This type of loan may come with a higher interest rate than other loans and with a variable interest rate that may go up over time.

Home Equity Loan

​​A Home Equity Loan, also called a second mortgage, is another popular ADU financing option. It’s similar to a home equity line of credit because the homeowner uses the equity in their home to pay down their initial mortgage. The difference with a Home Equity Loan is that you get the entire loan amount in one lump sum. The disadvantage is that you will have to pay interest on the entire loan amount (unlike the HELOC). The interest rate can be fixed rather than changeable, which is an advantage. Home equity loans have a higher interest rate than your primary, first mortgage and a payback period that commonly spans from 5 to 15 years instead of 30.

Refinancing Loan

​​A refinancing loan option is commonly referred to as a cash-out refinance. Refinancing replaces your first mortgage with a new one and releases some of your home’s equity as cash available to use for the construction of the ADU. The procedure is similar to a regular mortgage refinance, except that instead of refinancing for the same amount as your present mortgage, you refinance for up to the amount of your current home value. A cash-out refi, like the other types of ADU financing alternatives outlined above, requires that you have some equity in your home. As a result, the maximum amount you can refinance is usually around 80% of the value of your home.

Renovation Loan

Renovation loans are another option for funding an ADU or garage conversion. These are loans that are not secured by your home. They are quicker and easier to obtain than traditional loans, and they are based on your income standards rather than the value of your home or equity. Typically, these loans have been limited to around $100,000. The loan will also have a higher interest rate and a shorter payback period because it is not secured by the property. This type of ADU loan is ideal for those who want convenience and speed.

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Understand Your Finances First

All this talk of loans reminds me of the time my grandparents replaced all the windows in their home. They looked at all of their financing options because they did not have the cash available in their bank account. After researching all of their options, they decided to allow the window company to finance it in-house. We, too, offer in-house financial guidance, and we can help you make the best decision for your project funding.

It’s Almost Decision Time

As a homeowner, your ability to secure financing for an ADU may depend on your location, your credit score, your income, your existing debts, and your home equity. With this in mind, we designed a tool that prepares you to take on any project, regardless of size. Our Customized Financial Report illustrates a clear picture of debt to income ratio, loan to value ratio, monthly income, and a breakdown of current monthly bills to provide the best financial solution to reach your goals. 


When a homeowner walks into Multitaskr, they are introduced to Marco Martinez, our financial consultant. “It is my job to make it clear to each client that we do not work for any financial institution; instead, we work for the homeowner”. Marco makes sure to be transparent with every client and will guide you through the process of completing your Customized Financial Report so that you can get a clear picture of your current financial situation as well as a custom solution.

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Your Investment Dream is Possible!

Most people only dream of owning an investment property. With the right financial guidance, Real Estate owners can start dreaming of accomplishing all the financial wellness they are aiming towards. By building an ADU, you are capable of bringing in a second income without the daily grind of a second job. Remember when I said money hidden in your backyard would be a convenient, but unlikely way to finance your project? Well, look again, because just a small amount of backyard space is all you need to build an ADU and afford your investment dreams. We’re here to help you put all the pieces of a project together, including identifying a solid financial plan and available lending options before construction begins.

Don’t stay in the dark about your finances. Get started today and download our full CFR demo.

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