In the current economic climate, a Home Equity Line Of Credit (HELOC) is the most common financing option that our current customers are using. This is a line of credit taken out based on the equity you have and broken into two pay periods, a draw period, and a payback period, and you are only charged interest on the amount of the loan that you use which you can draw from to pay for your project during a specific period, typically around 10 years. The payments on this type of loan still come in far lower than what you can often rent it out for or the cost of housing an aging parent in an apartment or assisted living facility making this an incredibly affordable option!

A cash-out refinance is very similar to a HELOC in that it is based on your current equity, but rather than being secondary to your mortgage, a cash-out refinancing replaces your current mortgage and you can use the difference that goes to you in cash as a way to pay for your ADU. This is a great option if you have a lot of equity in your home and if your current interest rate is similar to or higher than the current going rate!

Unlike loans based on existing equity, a renovation/construction loan does not use your home as collateral so if you are wanting to avoid that or don’t have much equity then this may be a great option. However, this does often have more strict credit and income requirements as well as a higher interest rate typically, making the monthly payment often higher than with other options.

Beyond these traditional loans there are still a few other options that you can look into, including: A personal loan or line of credit Use of retirement accounts or personal investment Sale of another home or property Borrowing from family and friends Private money loans And more Ultimately there are most likely many more options than you would realize as well as dozens of different lenders with different terms to help you get approved for the payments that work best for you and your goals!